Manning Corporation is considering a new project requiring a $110,000 investment
ID: 2583139 • Letter: M
Question
Manning Corporation is considering a new project requiring a $110,000 investment in test equipment with no salvage value. The project would produce $74,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 36%. 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 $110,000 investment in test equipment with no salvage value. The project would produce $74,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 36%. 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 6Explanation / Answer
For purpose of calculating NPV, Net Cash Flow = Net profit after Tax + Depreciation
Years
Income Before Depreciation
Straight Line Depreciation
Taxable Income
Income tax
Net Profit After Tax
Net Cash flow for NPV
1
$74,000
$11,000
$63,000
$22,680
$40,320
$51,320
2
$74,000
$22,000
$52,000
$18,720
$33,280
$55,280
3
$74,000
$22,000
$52,000
$18,720
$33,280
$55,280
4
$74,000
$22,000
$52,000
$18,720
$33,280
$55,280
5
$74,000
$22,000
$52,000
$18,720
$33,280
$55,280
6
$74,000
$11,000
$63,000
$22,680
$40,320
$51,320
Years
Income Before Depreciation
Straight Line Depreciation
Taxable Income
Income tax
Net Profit After Tax
Net Cash flow for NPV
1
$74,000
$11,000
$63,000
$22,680
$40,320
$51,320
2
$74,000
$22,000
$52,000
$18,720
$33,280
$55,280
3
$74,000
$22,000
$52,000
$18,720
$33,280
$55,280
4
$74,000
$22,000
$52,000
$18,720
$33,280
$55,280
5
$74,000
$22,000
$52,000
$18,720
$33,280
$55,280
6
$74,000
$11,000
$63,000
$22,680
$40,320
$51,320
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