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$69,600a aThe total $69,600 represents the book value of the present machine at the end of the third year, as calculated in the preceding example. summing the purchase price of $380,000 and the installation costs of $20,000.
The proposed machine is to be depreciated under MACRS using a 5-year recovery period.10 The resulting depreciation on this machine for each of the 6 years,
as well as the remaining 3 years of depreciation (years 4, 5, and 6) on the present
machine, are calculated in Table 8.6.11
The operating cash inflows in each year can be calculated by using the
income statement format shown in Table 8.7. Substituting the data from Tables
8.5 and 8.6 into this format and assuming a 40% tax rate, we get Table 8.8. It
demonstrates the calculation of operating cash inflows for each year for both the
proposed and the present machine. Because the proposed machine is depreciated
over 6 years, the analysis must be performed over the 6-year period to capture
fully the tax effect of its year-6 depreciation. The resulting...
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This document was uploaded on 01/19/2014.
- Fall '13