ek Country Club in San Marcos is considering purchasing a new 15. (10) Quail Cre
ID: 2513489 • Letter: E
Question
ek Country Club in San Marcos is considering purchasing a new 15. (10) Quail Cre fleet of golf carts for their business. The initial cost of the fleet will be $80,000, with a salvage value of $20,000 after 5 years. The increased revenue genera new fleet will be $22,000 per year for the 5 useful years of the fleet. Quail Creek is in the 39% tax bracket and the fleet will be depreciated using the Straight-Line (SL) Method. Given this information, complete the cash flow table below. Year Before-tax Deprecia TaxableTncome TaxAfter-tax Cash Flow tion ncome Cash Flow NA NA NAExplanation / Answer
Answer:
Initial cost (year 0 cash out flow) =$80,000
Deprecation as per straight Line
=Cost-salvage value/ Life of assets
=80,000-20,000 /5
=60,000/5
=12,000 depreciation each year
Year
Before
tax cash
flow
Depreciation
Taxable
Income
Income tax
After Tax
Cash Flow
A
B
C=A-B
D=C*39%
E=C-D+C
0
-80,000
NA
NA
NA
-80,000
1
22,000
12000
10,000
3900
18,100
2
22,000
12000
10,000
3900
18,100
3
22,000
12000
10,000
3900
18,100
4
22,000
12000
10,000
3900
18,100
5
22,000
12000
10,000
3900
18,100
5
20,000
0
0
0
20,000
Year
Before
tax cash
flow
Depreciation
Taxable
Income
Income tax
After Tax
Cash Flow
A
B
C=A-B
D=C*39%
E=C-D+C
0
-80,000
NA
NA
NA
-80,000
1
22,000
12000
10,000
3900
18,100
2
22,000
12000
10,000
3900
18,100
3
22,000
12000
10,000
3900
18,100
4
22,000
12000
10,000
3900
18,100
5
22,000
12000
10,000
3900
18,100
5
20,000
0
0
0
20,000
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