Calculate the depreciation expense at the end of year two

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Madetaylor Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $150. The company feels that sales will be 10,000, 10,000, 10,000, 14,000, 14,000 and 14,000 units per year for the next 6 years. Variable costs will be 15% of sales, and fixed costs are $1,000,000 per year. The firm hired a marketing team to analyze the viability of the product and the marketing analysis cost $2,500,000. The company plans to use a vacant warehouse to manufacture and store the calculators. Based on a recent appraisal the warehouse and the property is worth $10 million on an after-tax basis. If the company does not sell the property today then it will sell the property 6 years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project in the amount of $2,000,000. This net working capital will be fully recovered at the end of the project. The firm will need to purchase some equipment in the amount of $3,800,000 to produce the new calculator. The firm is able to sell the machine at the end of the project for $1,000,000. The firm requires a 9% return on its investment and has a tax rate of 21%.

Problem 1:
Calculate the depreciation expense at the end of year 2. (Round to two decimals)

Reference no: EM132931944

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