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Final Exam
Name:
Hussein Bzeih
Attempt:
1 / 1
Out of:
30
Started:
May 15, 2010
4:00pm
Finished:
May 15, 2010
5:41pm
Time spent:
1 hr, 41 min.,
55 sec.
Student finished 18 min. 5 sec. ahead of the 120 min. time limit.
Question 1
(3 points)
(Chapter 17) An overland freight company has purchased new trailers for $200,000 and
expects to realize a net $100,000 in gross income over operating expenses for each of the
next 3 years. The trailers have a recovery period of 3 years. Assume an effective tax rate
of 30% and an interest rate of 10% per year. One is interested in two issues: a) calculate
the advantage of accelerated depreciation by calculating the present worth of taxes for the
MACRS method versus the classical SL method. Since MACRS takes an additional year
to fully depreciate the basis, assume no CFBT beyond year 3, but include any negative
tax as a tax savings. b) calculate the total taxes of both methods and compare them. Select
the correct answer.
Student response:
Percent
Value
Correct
Response
Student
Response
Answer Choices
100.0%
a.
both for the SL and
the MACRS method
Taxes per year are TI
multiplied by the
effective tax rate
0.0%
b
.
both for the SL and
the MACRS method
Taxes per year are TI
multiplied by 10%
0.0%
c.
TI for year t = CFAT
of year t – D of that
year
0.0%
d
.
The depreciation rate
for both the SL and
MACRS method need
to have a subscript t
to represent the year
Score:
3 / 3
Question 2
(3 points)
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(Chapter 17) An overland freight company has purchased new trailers for $200,000 and
expects to realize a net $100,000 in gross income over operating expenses for each of the
next 3 years. The trailers have a recovery period of 3 years. Assume an effective tax rate
of 30% and an interest rate of 10% per year. One is interested in two issues: a) calculate
the advantage of accelerated depreciation by calculating the present worth of taxes for the
MACRS method versus the classical SL method. Since MACRS takes an additional year
to fully depreciate the basis, assume no CFBT beyond year 3, but include any negative
tax as a tax savings. b) calculate the total taxes of both methods and compare them.
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 Spring '07
 COSTA
 Depreciation, Percent Correct Student

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