1- A company has a machine pruchased for $50000 that has an estimated salvsge va

Question

1- A company has a machine pruchased for $50000 that has an estimated salvsge value of $5000 at the end of 5 years useful life. the company tax rate is 35% a- if the before tax cach flow for this machine is as shown below, calculate the after cash flow by completing the table using duble declining balance deperciation b-calculate the after cash flow by completing the table using MACRS depreciation (3 yreas property class) BTCF DEPRECIATION BOOK VALUE TAXABLE INCOME TAX ATCF 0 50,000 115,000 2 15,000 3 15,000 4 15,000 5 15,000 5 5000

Explanation / Answer

Double declining balance(DDB) method Straight-line depreciation rate = 1/5= 20% DDB rate = 2*20% =40% on the decining/carrying value Year Book Value at beg.of Year Yearly depn.at 40% of op. Bookvalue Book value at end of Year Accumulated depn. 1 2 3=2*40% (2-3) (total depn.till date) 1 50000 20000 30000 20000 2 30000 12000 18000 32000 3 18000 7200 10800 39200 4 10800 4320 6480 43520 5 6480 1480 5000 45000 45000 Year BTCF Depn. Book Value Taxable income Tax Add back Depn. ATCF 1 2 3 4 5=2-3 6= +ve 5*35% 7=3 8=5-6+7 0 -50000 -50000 1 15000 20000 30000 -5000 0 20000 15000 2 15000 12000 18000 3000 1050 12000 13950 3 15000 7200 10800 7800 2730 7200 12270 4 15000 4320 6480 10680 3738 4320 11262 5 15000 1480 5000 13520 4732 1480 10268 5 5000 0 5000 1750 0 3250 2 Year Book Value at beg.of Year MACRS depn. % Depn.amt. Book value at end of Year Accumulated depn. 1 2 3 4=(2*3) 2-4 (total depn.till date) 1 50000 33.33% 16665 33335 16665 2 45000 44.45% 20003 13333 36668 3 45000 14.81% 6665 6668 43332 4 45000 7.41% 1668 5000 45000 100.00% 45000 Year BTCF MACRS Depn. Book Value Taxable income Tax Add back Depn. ATCF 1 2 3 4 5=2-3 6= +ve 5*35% 7=3 8=5-6+7 0 -50000 -50000 1 15000 16665 30000 -1665 0 16665 15000 2 15000 20003 18000 -5003 0 20003 15000 3 15000 6665 10800 8336 2917 6665 12083 4 15000 1668 6480 13332 4666 1668 10334 5 15000 5000 15000 5250 9750 5 5000 5000 1750 3250

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