Reference no: EM132004291

1. Neckole owns 50% interest in partnership J&K. She contributes a computer with a FMV of $15,000 and an adjusted basis of $10,000 to the partnership. Which of the following is true?

a. the partnership's basis in the computer system will be $10,000 and Neckole's outside basis will increase by $10,000

b. the partnership's basis in the computer system will be $10,000 and Neckole's outside basis will increase by $15,000

c. the partnership's basis in the computer system will be $15,000 and Neckole's outside basis will increase by $15,000

2. Abbott placed into service a flexible manufacturing cell costing $810,000 early this year. They financed $425,000 of the initial cost of the cell at 11% per year over 5 years. Gross income due to the cell is expected to be $750,000 with deductible expenses of $495,000. Depreciation is based on MACRS-GDS, and the cell is in the 7-year property class. Abbott's marginal tax rate is 40%, MARR is 14% after taxes, and they expect to keep the cell for 8 years.

Determine the PW, FW, AW, IRR, and ERR for the investment if:

The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last year).

The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance).

The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan).

The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period).