Also, we can see for the Excel 6 that if we make that purchase, the AW would be $23K. Although we need to make total investment of $1050K and $1850K on 1985 and 1986, it can be compensated by the saved money and greater value of depreciation. The old equipment can be sold with $150K, which is much ideal than sold with $60K 9 years later. The net saving inflation rate is 6% and we get the depreciation rate via Exhibit 2. According to these numbers, we get taxable income and since the tax rate is 34%, we get the tax that we need to pay. However, the ITC plan is not an option. Then we can have the ATCF and annualize it. The AW incremental is $11K. Excel 6. Not Grand, MACRS, no ITC, t=34%, New ($ 000s) 4. Summary According our data and analysis, Pressco, Inc. should replace the old equipment and buy a new one in condition 2. Rumored tax proposals are enacted, then they can use a lower tax rate to reduce expense. If the new drying equipment is placed in service in Dec 1986 and Paperco signs a purchase contract soon enough to be “grandfathered” for the 8% investment tax credit and the use of ACRS depreciation, they can use ITC to gain 8% tax credit of the total book value and the relatively faster depreciation will help to improve AW.
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- Spring '15
- Depreciation, Taxation in the United States, ITC