9. Taxation of salvage AaAa Kitsch Tech is a company that produces iGadgets, amo
ID: 2770198 • Letter: 9
Question
9. Taxation of salvage AaAa Kitsch Tech is a company that produces iGadgets, among several other products. Suppose that Kitsch decided to terminate production of iGadgets before the equipment used on this project is fully depreciated. The folowing table shows the yearly ending book values along with expected salvage values for each year. Year 1 Year 2 Year 3 Year Ending book value $5,167 $1,722 $374 $o Salvage value $3,325 $2,230 $1,740 $900 Suppose Kitsch terminates at Year 2, Assume that the tax rate is 40% and gains and losses are taxed as ordinary income or expenses, accordingly. Then there is a reported fow is of , and Kitsch's after-tax cash Which of the following statements about a project's cash fows is correct? O The depreciation expense that can be taken in each year is determined by the company's board of trustees O Taxes increase operating cash flows. O A project's net cash flow includes interest payments O The depreciation expense that can be taken in each year is determined by tax laws. 3341 2004-2016 Aplic Al rightsserved 013 Cengage Learring ecept as notedAl rigts erved Grade Iit Now · F6 F7 F8 F9 F10 4 5Explanation / Answer
If Kitsch Tech terminates its operations in year 2, then there is a reported profit of $508 (Salvage Value - Closing Value =$2230-$1722).
And after tax cash flow will be $305 ($508 - 40%*508)
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