Troy Industries purchased a new machine 2 year(s) ago for $78,000. It is being depreciated under MACRS with a 5-year recovery period using the schedule Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% . Assume 21% ordinary and capital gains tax rates. a. What is the book value of the machine? b. Calculate the firm's tax liability if it sold the machine for each of the following amounts: $93,600; $54,600; $37,440; and $26,200. Sale Capital Tax on Depreciation Tax on Total price Gain capital gain recevory recevory Tax $93,600 ? ? ? ? ? $54,600 ? ? ? ? ? $37,400 ? ? ? ? ? $26,200 ? ? ? ? ?

Troy Industries purchased a new machine 2 year(s) ago for $78,000. It is being depreciated under MACRS with a 5-year recovery period using the schedule Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% . Assume 21% ordinary and capital gains tax rates. a. What is the book value of the machine? b. Calculate the firm's tax liability if it sold the machine for each of the following amounts: $93,600; $54,600; $37,440; and $26,200. Sale Capital Tax on Depreciation Tax on Total price Gain capital gain recevory recevory Tax $93,600 ? ? ? ? ? $54,600 ? ? ? ? ? $37,400 ? ? ? ? ? $26,200 ? ? ? ? ?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 4PROB

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Troy Industries purchased a new machine 2 year(s) ago for $78,000. It is being depreciated under MACRS with a 5-year recovery period using the schedule

Recovery year 3 years 5 years 7 years 10 years

1 33% 20% 14% 10%

2 45% 32% 25% 18%

3 15% 19% 18% 14%

4 7% 12% 12% 12%

5 12% 9% 9%

6 5% 9% 8%

7 9% 7%

8 4% 6%

9 6%

10 6%

11 4%