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ISyE3025_Spring_11_HW3_Solutions

# ISyE3025_Spring_11_HW3_Solutions - ISy E 3025 Sp ring 201 1...

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ISyE 3025 Spring 2011, HW3 Solutions Your company purchased an asset that cost \$235,000. The asset is in the 15-year property class. There are two scenarios: Scenario 1, the asset is kept 17 years and then sold just before the end of year 17 for \$25,000; Scenario 2, the asset is kept 13 years and then sold early, just before the end of year 13 for \$45,000. Use both MACRS methods with the half-year convention to compute deprecation expenses, year by year. There are four depreciation schedules for this problem: (two scenarios) x (two methods). Purchase cost 235000 Salvage 25000 N 15 specified % Alt. SL spec% Alt SL year % Dep. % Dep Dep. Dep. 1 5.00 11750.00 0.0333 7833.33 11750.00 7833.33 2 9.50 22325.00 0.0667 15666.67 22325.00 15666.67 3 8.55 20092.50 0.0667 15666.67 20092.50 15666.67 4 7.70 18095.00 0.0667 15666.67 18095.00 15666.67 5 6.93 16285.50 0.0667 15666.67 16285.50 15666.67 6 6.23 14640.50 0.0667 15666.67 14640.50 15666.67 7 5.90 13865.00 0.0667 15666.67 13865.00 15666.67 8 5.90 13865.00 0.0667 15666.67 13865.00 15666.67 9 5.91 13888.50 0.0667 15666.67 13888.50 15666.67 10 5.90 13865.00 0.0667 15666.67 13865.00 15666.67 11 5.91 13888.50 0.0667 15666.67 13888.50 15666.67 12 5.90 13865.00 0.0667 15666.67 13865.00 15666.67 13 5.91 13888.50 0.0667 15666.67 6944.25 7833.333 14 5.90 13865.00 0.0667 15666.67 0 0 15 5.91 13888.50 0.0667 15666.67 0 0 16 2.95 6932.50 0.0333 7833.33 0 0 17 0 0 0 0.00 0 0 sum 100 235000 1.00 235000 193370 188000 1. Using the same data as in problem 1, compute the net cash flow after sale of the asset, assuming a marginal tax rate for operating income of 35%. Again, there are (two scenarios) x (two methods). Scenario spec %, 17 yrs Alt. SL 17 yrs spec %, 13 yrs Alt. SL 13 yrs Total deprec. exp. 235000 235000 193369.75 188000 BV at time of sale 0 0 41630 47000 Sale proceeds 25000 25000 45000 45000 Profit on sale 25000 25000 3370 -2000 Tax on profit 8750 8750 1180 -700 Cash from sale 16250 16250 43820 45700 2. Your company purchased an asset that cost \$235,000, and had an expected salvage value of \$25,000. Compute the annual depreciation that would be taken, year by year, using classical or pre-1981 methods, without the half-year convention. The asset has a 15-year depreciation life, and it is kept this amount of time and then sold for \$25,000. Use the SL, SYD, and 200%DB methods. Note: in solution for 200%DB, the accountant most likely would adjust the depreciation amount in the last year (or earlier) to make total accumulated depreciation equal to \$210,000. Purchase cost 235000 Salvage 25000 N 15 Allocate 210000 rate 0.1333 year SL % SL Dep. SYD SYD % SYD Dep. DB Dep new BV 1 0.0667 14000.00 15 0.1250 26250.00 31333.33 203667 2 0.0667 14000.00 14 0.1167 24500.00 27155.56 176511 3 0.0667 14000.00 13 0.1083 22750.00 23534.81 152976 4 0.0667 14000.00 12 0.1000 21000.00 20396.84 132579 5 0.0667 14000.00 11 0.0917 19250.00 17677.26 114902 6 0.0667 14000.00 10 0.0833 17500.00 15320.29 99582 7 0.0667 14000.00 9 0.0750 15750.00 13277.59 86304 8 0.0667 14000.00 8 0.0667 14000.00 11507.24 74797 9 0.0667 14000.00 7 0.0583 12250.00 9972.94 64824 10 0.0667 14000.00 6 0.0500 10500.00 8643.22 56181 11 0.0667 14000.00 5 0.0417 8750.00 7490.79 48690 12 0.0667 14000.00 4 0.0333 7000.00 6492.02 42198 13 0.0667 14000.00 3 0.0250 5250.00 5626.41 36572 14 0.0667 14000.00 2 0.0167 3500.00 4876.23 31695 15 0.0667 14000.00 1 0.0083 1750.00 4226.06 27469 sum 210000 120 1.00 210000 207531

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3. A company obtained a loan to help finance the asset. The question is how to repay the loan. There are two popular options: equal principal payments and equal total payments (the total of principal and interest is the same each year). Prepare loan repayment schedules for these two methods [easy]. Then compare these two methods [difficult]. The MARR is 15% and the marginal tax rate is 30%. Amount borrowed 300,000 Annual loan interest rate 10% Years to repay 8 For equal principal payments, the principal payment each year is 300,000/8. The interest payment is then comp uted yearly based on the previous loan balance. For equal total payments, one must compute the total annual payment as (Amount borrowed)(A/P,i,N).
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ISyE3025_Spring_11_HW3_Solutions - ISy E 3025 Sp ring 201 1...

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