(52 points) Imperial Chemical Inc., whose net worth is 16 billion dollars, is co

Question

(52 points) Imperial Chemical Inc., whose net worth is 16 billion dollars, is considering the ope a synthetic fertilizer manufacturing system on a short term basis. The company's acco including tax, depreciation, and inflation in any calculations. The financial information table for this system is shown below: unt suggests FIRST COST SALVAGE VALUE BEFORE TAX ANNUAL REVENUE USEFUL LIFE INTEREST RATE DEPRECIATION METHOD $2,500,000 $250,000 $650,000 5 YRS 12% MACRS 3 YRS 25% SYSTEM'S ADR Determine the tax payment schedule expected for this proposal. Declare if the tax payments are constant or nominal dollars.

Explanation / Answer

Depreciation cost base: First cost – Salvage value = $2500000 - $250000 = $2250000

Year Earnings before depreciation and tax MACRS Depreciation Earnings before tax Tax @35% Earnings after tax 1 650000 450000 200000 70000 130000 2 650000 720000 -70000 -24500 -45500 3 650000 432000 218000 76300 141700 4 650000 259200 390800 136780 254020 5 650000 259200 390800 136780 254020 0 0 6 129600 -129600 -45360 -84240 2250000

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