Show calculations relating to depreciation and gains tax

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Reference no: EM131047758

Your business just bought a brand new boat, in year zero, to help with underwater lumber recover. The boat, a ten-year asset, cost $1,500,000. The boat requires less crew and is more fuel efficient reducing fuel and operating costs from $3.5M per year to $3.2M. The reduced fuel use allows you to reduce your fuel inventory from $50,000 to $40,000. The purchase is funded with cash and a $1M loan at 10% per year with a payment in years 1 and 2. Please assume a 50% tax rate, and that you can sell the boat in year 3 for $1M.

(a) Show the calculations relating to the loan.

(b) Show calculations relating to depreciation and gains tax.

Reference no: EM131047758

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