1. Equipment costing $20,000 hat is a MACRS 3year property is disposed of during
ID: 2596246 • Letter: 1
Question
1. Equipment costing $20,000 hat is a MACRS 3year property is disposed of during the second year for $12.000, with MACRS method only half of the recapture, ordinary losses, or capital gains associated with disposal of this equipment at the end of the second year? (10 pts, no partial credit) depreciation is allowed in the recovery year. What is the amount of depreciation A. $3,111 B. $8,889 C.$5120 D. $8,000 2. Pace Corporation in Cookeville, Tennessee bought production equipment 2 years ago for $38,000. The equipment was t imated to be $4,000 at the end of its useful life. Unfortunately the equipment did not perform satisfactorily and the company spent $15,.000 a year ago It is recommended by the plant engineer that the equipment be either upgraded now for another $12.000 or replaced with equipment now. If the equipment is replaced now, it can be sold for $8,000. In conducting a replacement analysis, the cost of the defender to be used is equal to: (10 pts, no partial credit) A. $38,000 B. $35,000 C. $27.000 D. $8,000 3. An injection-molding machine has a first cost of S$1,050,000 and a salvage value of $225,000 in any year. The maintenance and operating cost is S235,000 with an annual gradient of S75,000. The MARR is lo%, what is the most C. 7 years If the real interest rate is 7% and the inflation rate is 5%, what is the market interest rate? (10 pts, no partial credit) economic life of this machine? (10 pts, no partial credit) A. 3 years B. 5 years D. 8 years 4. A. 12.35% B. 11.65% C. 16.63% D. 13.84% S. Assume that over the past eight years, prices have increased by a total of 65%, what is the annual inflation rate? The inflation rate is compounded annually. Compute your answer to the nearest 0.01%. (10 pts, no partial credit) A. 4.45% B. 6.46% C. 5.70% D. 3.92% 2500 Determine the unknown x frorn the cash flow diagram shown for-10%. (10 pts, no partial credit) 6. 1500 500 A. $3,823 B. $4,503 C. $3,291 D. $2,507Explanation / Answer
1. Calculation of Depreciation expense in the first year and second year.
Depreciation Rates (MARCS) rates 3 year recovery = Year 1: 33.33% ; Year 2: 44.45%
Depreciation for first year = $20,000 x 33.33% = $6,666
Depreciation for the recovery year (Half Dep) = $20,000 x 44.45% / 2 = $4,445
Total Depreciation upto the year of disposal = $11,111
Book Value in the year of sale = $20,0000 - $11,111 = $8,889
Sale Value = $12,000
Profit On disposal = $12,000 - 8,889 = $3,111
Since the depreciation expense provided is more than the profit in sale of asset. $3,111 will be the depreciation recapture on the disposal of asset. Correct Answer is A.
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