Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $90,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $40,800. A new piece of equipment will cost $235,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Year |
|
Cash Savings |
1 |
|
$ |
67,000 |
|
2 |
|
|
57,000 |
|
3 |
|
|
55,000 |
|
4 |
|
|
53,000 |
|
5 |
|
|
50,000 |
|
6 |
|
|
39,000 |
|
|
|
|
Year |
Tax Shield Benefits from Depreciation |
Aftertax Cost Savings |
Total Annual Benefits |
1 |
7,430 |
50,250 |
$57,680 |
2 |
16,212 |
42,750 |
58,962 |
3 |
8,692 |
41,250 |
49,942 |
4 |
5,451 |
39,750 |
45,201 |
5 |
6,756 |
37,500 |
44,256 |
6 |
3,407 |
29,250 |
32,657 |
|
The firm’s tax rate is 25 percent and the cost of capital is 14 percent.
j-2.Compute the present value of the total annual benefits.(Do not round intermediate calculations and round your answer to the nearest whole dollar.)
k-1.Compare the present value of the incremental benefits(j) to the net cost of the new equipment(e).(Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.)
Extracted text: m edaConnes Production/bne/tinance/block_ 17e/Block17e AppB.pdr d- Student... EveryDollar Sunrise Elementary ParentVUE Other Bookmarks Re 1/ 2 99% Open in Acrobat Appendix B Present value of $1, PVF 1 PV = FV (1+"] Percent Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 9. 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 25 0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 0.116 0.074 0.059 760 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 50 0.608 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 0.009 0.005 0.003 etv A O MacBook Air O00 O00 F4 II F8 F5 F6 F7 F9 F10
Extracted text: Ashford - Student... EveryDollar Sunise Elementary ParentvoE Table 12-11 Categories for depreclation write-off Class All property with ADR midpolints of four years or less. Autos and light trucks are excluded from this category. 3-year MACRS Property with ADR midpoints of more than 4, but less than 10 years. Key assets in this category include automobiles, light trucks, and techno- logical equipment such as computers and research-related propertles. Property with ADR midpoints of 10 years or more, but less than 16 years. Most types of manufacturing equipment would fall into this category, as would office furniture and fixtures. 5-year MACRS 7-year MACRS 10-year MACRS Property with ADR midpoints of 16 years or more, but less than 20 years. Petroleum refining products, railroad tank cars, and manufactured homes fall into this group. 15-year MACRS Property with ADR midpoints of 20 years or more, but less than 25 years. Land improvement, pipeline distribution, telephone distribution, and sewage treatment plants all belong in this category. Property with ADR midpoints of 25 years or more (with the exception of real estate, which is treated separately). Key investments in this cat- egory include electric and gas utility property and sewer pipes. 20-year MACRS Residential rental property if 80% or more of the gross rental income is from nontransient dwelling units (e.g., an apartment building); low- income housing. 27.5-year MACRS 31.5-year Nonresidential real property that has no ADR class life or whose class life is 27.5 years or more. MACRS 39-year MACRS Nonresidential real property placed in service after May 12, 1993. tv A MacBook Air