You are going to buy a termite chemical extermination business as a novel studen

Question

You are going to buy a termite chemical extermination business as a novel student job. The system is 1 year old and is depreciated using a 5-year MACRS schedule. The cost of purchasing and delivery of the system is $10,000. The purchase year is 2003 (this is year 0). We pay for the project using $4,000 cash on hand, and a 3-year loan at 10% interest per year compounded yearly paid yearly. The loan is paid off using an amortized loan (equal loan payments). Ordinary and capital gains are taxed at a 25% rate (combined federal and the state). Complete the following depreciation schedule for the machine assuming that you sell the machine in fall 2006. Compute the capital gain and the gains tax on the sale of the machine. (If you cannot do the depreciation table, then assume that the book value for the machine in year 4 is $3,500). Compute the yearly loan payment. Complete following table for the loan principal and interest in each period.

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