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# Graded Homework 2 Solution - Problem 1 Year 0 1 2 3 4 5 Net...

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Problem 1 Year Cashflow Tax Benefit from Depreciation Deduction* Net Cash Flow Discount Factor Net Present Value 0 (75,000) (75,000) 1 (75,000.00) 1 5,250 5,250 0.9524 5,000.00 2 8,400 8,400 0.9070 7,619.05 3 5,040 5,040 0.8638 4,353.74 4 3,024 3,024 0.8227 2,487.85 5 15,000 (714) 14,286 0.7835 11,193.45 Net Present Value (44,345.90) Year Cashflow Tax Benefit from Depreciation Deduction* Net Cash Flow Discount Factor Net Present Value 1 (75,000) 5,250 (69,750) 1.0000 (69,750.00) 2 8,400 8,400 0.9524 8,000.00 3 5,040 5,040 0.9070 4,571.43 4 3,024 3,024 0.8638 2,612.24 5 15,000 (714) 14,286 0.8227 11,753.13 Net Present Value (42,813.20) * The tax benefit is calculated based on the MACRS depreciation deduction for the year times Evergreen’s tax rate of 35%. The tax benefit from the initial year’s depreciation is \$5,250 (\$75,000 X 20% X 35%). **The tax benefit equals the tax benefit from the depreciation deduction of \$1,512(75,000*.1152*.5*.35) less the tax cost from the gain on the sale of 476 [(15,000- 8,640)*.35].

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Problem 2 a. 10,000 collectible or 28% gain b. 12,000 LTCL c. 4000 STCG d. 8,000 25% gain and 9,000 LTCG e. 12,000 STCL f. 7,000 LTCG g. 11,000 LTCL Short-term Capital Gains/Losses 28% Gain 25% Gain Long-term Capital Gains/Losses c. 4,000 a. 10000 d. 8,000 b. (12,000) e. (12,000) d. 9,000 f. 7,000 g. (11,000) _________ _________ _________ __________ (8,000) 10,000 8,000 (7,000) (7,000) (5,000) 3,000 (3,000) 3,000 0 Tax on \$200,000 at ordinary income rates
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