Calculate the accumulated depreciation in year three

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Reference no: EM131618728

Ken Smith wants to start a deck and fence company called Heritage Design. Ken will run the business for three years and then retire. Assume that his investment outlays will occur immediately and all operating cash flows occur at? year-end with the first ?year's cash flows occurring one year from now. Ken plans to buy two? pick-up trucks at a cost of $44,100 per vehicle. He also expects to purchase $21,400 worth of tools and equipment. The trucks and the equipment are classified as a? 5-year property?(MACRS depreciation rates are shown in the table).

Ken is forecasting that he will build 145 decks in the first year and 155 decks in years 2 and 3. He anticipates that the average deck will be priced at $6,400. Ken estimates that the cost of lumber for the typical deck is $2,000. Ken will rent an office and a garage.? Rent, office ?expenses, and vehicle expenses are expected to be $50,000 per year. Ken will hire a? salesman, a? receptionist/bookkeeper and two installers to help with deck construction. Total wages and salaries are expected to be $290,000 per year. The corporate tax rate is 30%.

At the end of three years, Ken expects that he will be able to sell each of the trucks for $8,000, but he expects that he tools and equipment will be worthless.

Calculate the depreciation expense in year 2.

Calculate the accumulated depreciation in year 3.

Calculate the book value of the asset at the end of year 1.

Calculate the operating cash flow in year 2.

Calculate the net salvage value on the assets in year 3.

Calculate the terminal cash flow including OCF.

MACRS Table

Year 5-Year 7-Year 10-Year

1 20.00% 14.29% 10.00%

2 32.00% 24.49% 18.00%

3 19.20% 17.49% 14.40%

4 11.52% 12.49% 11.52%

5 11.52% 8.93% 9.22%

Reference no: EM131618728

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