5 note that both the expected usable life of the

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Unformatted text preview: proposed new machine described in the preceding example, are given in Table 8.5. Note that both the expected usable life of the proposed machine and the remaining usable life of the present machine are 5 years. The amount to be depreciated with the proposed machine is calculated by TABLE 8.5 Powell Corporation’s Revenue and Expenses (Excluding Depreciation) for Proposed and Present Machines With proposed machine Year Revenue (1) Expenses (excl. depr.) (2) 1 $2,520,000 2 2,520,000 3 With present machine Year Revenue (1) Expenses (excl. depr.) (2) $2,300,000 1 $2,200,000 $1,990,000 2,300,000 2 2,300,000 2,110,000 2,520,000 2,300,000 3 2,400,000 2,230,000 4 2,520,000 2,300,000 4 2,400,000 2,250,000 5 2,520,000 2,300,000 5 2,250,000 2,120,000 372 PART 3 Long-Term Investment Decisions TABLE 8.6 Year Depreciation Expense for Proposed and Present Machines for Powell Corporation Cost (1) Applicable MACRS depreciation percentages (from Table 3.2) (2) Depreciation [(1) (2)] (3) With proposed machine 1 $400,000 2 400,000 20% 32 128,000 3 400,000 19 76,000 4 400,000 12 48,000 5 400,000 12 48,000 6 400,000 5 20,000 Totals $ 80,000 100% $400,000 12% (year-4 depreciation) $28,800 With present machine 1 $240,000 2 240,000 12 (year-5 depreciation) 28,800 3 240,000 5 (year-6 depreciation) 12,000 4 5 6 Total Because the present machine is at the end of the third year of its cost recovery at the time the analysis is performed, it has only the final 3 years of depreciation (as noted above) st...
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