Macrs method instead of straight-line depreciation method

Assignment Help Financial Management
Reference no: EM13873720

The initial installed cost for a new piece of equipment is $10,000. After the equipment has been in use for 4 years, it is sold for $7,000. The company that originally owned the equipment employs a straight-line method for determining depreciation costs. If the company had used the MACRS 5-year method for determining depreciation costs, the asset or book value for the piece of equipment at the end of 4 years would have been $1728. The total income tax rate for the company is 35% of all gross earnings. Capital gains taxes amount to 20% of the gain. How much net savings would the company have achieved by using the MACRS method instead of straight-line depreciation method?

Reference no: EM13873720

Questions Cloud

Define turning to a market economy : Turning to a Market Economy
Explain the focus of the document in relation to eoq : Explain the focus of the document in relation to EOQ and summarize the information contained within it: How does this real-world example compare with what you have read in the material for this module
Calculate net present worth of tax savings associated : You work for a natural gas pipeline company; it has just spent $150,000,000 (fixed capital investment) building a new pipeline network that it plans to operate for 30 years. calculate the net present worth of the tax savings associated with both sche..
Which is associated with overnutrition : Foods that have health-promoting and/or disease-preventing properties beyond basic nutritional functions are called
Macrs method instead of straight-line depreciation method : The initial installed cost for a new piece of equipment is $10,000. After the equipment has been in use for 4 years, it is sold for $7,000. The company that originally owned the equipment employs a straight-line method for determining depreciation co..
Differentiate the role of courts in various societies : Differentiate the role of courts in various societies and in international context
Project management lingo and expressing your opinions : Based on the lessons learned from this project/situation, what steps will you take in the future to maximize the chance that you will have the needed resources on your projects?
What is range of values of c for which competent electrician : What is the range of values of C for which a competent electrician will choose to signal with this device but an incom­ petent one will not?
Find the present value of this annuity : A three-year continuous annuity pays a total of $100 during the first year, $400 during the second year, and $1,000 during the third year. Within each year, the payments are made continuously and evenly throughout the year. The effective annual inter..

Reviews

Write a Review

Financial Management Questions & Answers

  Kinds of international strategies

When companies expand into the international arena, they do so either because their home market has matured or because they see real opportunities in the foreign market. Discuss which kinds of international strategies are most appropriate for comp..

  What is the annual interest rate

Company expects to use $1,600,000 short term credit bus wants a $3,000,00 line of credit in case of unexpected events. LIBOR is 4% and the loan is priced at LIBOR plus 2.5% with Commitment fee of 0.3% on the unused portion of the line. Bank also requ..

  Based on the clientele effect

Based on the “clientele effect,” what would happen to a stock’s clientele if the dividend amount were abruptly doubled?

  Same cost of equity and after tax cost of debt

Two companies have the same cost of equity and after tax cost of debt. What needs to be true regarding the cost of debt as compared to cost of equity for the WACC of the higher leverage firm to be higher than that of lower leverage firm? And why?

  What is the present equivalent cost of the investment

A machine at a bottling plant that has a first cost of $150,000, operating and maintenance costs of $17,500 per year, and an estimated net salvage value of $25,000 at the end of thirty years. Assume an interest rate of 8%. What is the   present equiv..

  Equity used is from retained earnings

Quinlan Enterprises stock trades for $52.50 per share. It is expected to pay a $2.50 dividend at year end (D1 = $2.50), and the dividend is expected to grow at a constant rate of 5.50% a year. The before-tax cost of debt is 7.50%, and the tax rate is..

  Two types of bonds-what is the value of the warrants

Gregg Company recently issued two types of bonds. The first issue consisted of 20-year straight (no warrants attached) bonds with an 10% annual coupon. The second issue consisted of 20-year bonds with a 7% annual coupon with warrants attached. Both b..

  What was his return on investment

Dave bought a rental property for $200,000 cash. One year later, he sold it for $240,000. What was the return on his $200,000 investment? Suppose Dave invested only $20,000 of his own money and borrowed $180,000 (interest free from his rich father). ..

  The loan calls for equal monthly payments

You borrow $50,000 5 year loan to make renovations to a house. The interest rate on this loan is 8% per year. The loan calls for equal monthly payments. What is the monthly payment on this loan?

  Determine the firms after-tax cost of capital

Determine the firms after-tax cost of capital is the first step in making this decision. Boots has approached you with the following information to see if you can help him with his problem.

  Calculate the return on invested capital for each firm

Firms HL and LL are identical except for their leverage ratios and the interest rates they pay on debt. Each has $15 million in invested capital, has $2.25 million of EBIT, and is in the 40% federal-plus-state tax bracket. Calculate the rate of retur..

  Proposed expansion of an existing subsidiary

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 21 million. The cash flows from the project would be SF 5.9 million per year for the next five years. The dollar required ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd