Manning Corporation is considering a new project requiring a $100,000 investment

Question

Manning Corporation is considering a new project requiring a $100,000 investment in test equipment with no salvage value. The project would produce $68,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 38%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.)

Manning Corporation is considering a new project requiring a $100,000 investment in test equipment with no salvage value. The project would produce $68,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 38%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.)

equied 1. Complete the following table assuming use of straight-line depreciation. Net cash flow equals the amount of income before depreciation minus the income taxes. Income Before Straight-Line Taxable Income Net Cash Flows Depreciation Depreciation Income Taxes Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Explanation / Answer

a b c= a-b d = c* 38% e = c-d Year Income before depreciation straight line dep Taxable income income tax Net cash flow 1 68000 10000 58000 22040 35960 2 68000 20000 48000 18240 29760 3 68000 20000 48000 18240 29760 4 68000 20000 48000 18240 29760 5 68000 20000 48000 18240 29760 6 68000 10000 58000 22040 35960

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