\"The Simon Machine Tools Company is considering purchasing a new set of machine
ID: 2517585 • Letter: #
Question
"The Simon Machine Tools Company is considering purchasing a new set of machine tools to process special orders. The following financial information is available. - Without the project, the company expects to have a taxable income of $432,000 each year from its regular business over the next three years. - With the three-year project, the purchase of a new set of machine tools at a cost of $41,000 is required. The equipment falls into the MACRS three-year class. The tools will be sold for $10,000 at the end of project life. The project will be bringing in additional annual revenue of $85,000, but it is expected to incur additional annual operation of $22,000. What are the additional income taxes paid because of the project in year 2 if the tax rate is 34%?"
Explanation / Answer
In this question, we determine additional income taxes paid applicable during three year when project will be include.Note that it was mentioned that additional income $ 85,000 with additional operating expenses $ 22,000 realized anually during three years and MACRS depreciation schedule must applied as well. We have,
Depreciation Expenses
(MACRS method Application)
Hence, the additional income taxes paid of the project in year 2 will be $ 15,223.
Items Year 1 year 2 Year 3 Additional Annual Revenue $ 85,000 $ 85,000 $ 85,000 Less: Operating Cost $ 22,000 $ 22,000 $ 22,000Depreciation Expenses
(MACRS method Application)
$ 13,665 $ 18,225 $ 3,038 Taxable Income $ 49,335 $ 44,775 59,962 Tax Expense @ 34% $ 16,774 $ 15,223 $ 20,387Related Questions
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