Johnson products is considering purchasing a new milling machine that costs $100
ID: 2659322 • Letter: J
Question
Johnson products is considering purchasing a new milling machine that costs $100,000. The machines installation and shipping costs will total $2,500. If accepted, the milling machine project will require an initial net working capital investment of $20,000. Johnson plans to depreciate the machine on a straight-line basis over a period of 8 years.about a year ago, Johnson paid $10,000to a consulting firm to conduct a feasibility study of a new milling machine, Johnson's marginal tax rate is 40 percent.
A. calculate the projects net investment (NINV). $122,500 answer
B. calculate the annual straight line depreciation for the project.
C calculate MACRS depreciation
Explanation / Answer
a. Project's net investment (NINV) =$100,000+$2,500 +$20,000= $122,500.00
b annual straight-line depreciation for the project =$100,000/8 = $12,500.00
c.Depreciation in 1st year =14.29%*$100,000= $14,290.00
Depreciation in 2nd year =24.49%*$100,000= $24,490.00
Depreciation in 3rd year =17.49%*$100,000= $17,490.00
Depreciation in 4th year =12.49%%*$100,000= $12,490.00
Depreciation in 5th year =8.93%*$100,000= $8,930.00
Depreciation in 6th year =8.92%*$100,000= $8,920.00
Depreciation in 7th year =8.93%*$100,000= $8,930.00
Depreciation in 8th year = 4.46%*$100,000= $4,460.00
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