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Use the table below to answer this question. MACRS 5-year property Year Rate 1 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.

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1. Use the table below to answer this question.

MACRS 5-year property
Year Rate
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
6 5.76%

Sun Lee's Furniture just purchased some fixed assets classified as 5-year property for MACRS. The assets cost $56,000. What is the amount of the depreciation expense for the second year?
$11,200
$6,451
$5,600
$17,920
$8,960


2. A project is expected to create operating cash flows of $30,500 a year for three years. The initial cost of the fixed assets is $63,000. These assets will be worthless at the end of the project. An additional $2,000 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 14 percent?
$2,178.57
$5,809.78
$5,159.72
$9,159.72
$7,159.72


3. Thornley Machines is considering a 3-year project with an initial cost of $960,000. The project will not directly produce any sales but will reduce operating costs by $500,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $143,000. The tax rate is 34 percent. The project will require $26,000 in extra inventory for spare parts and accessories. Should this project be implemented if Thornley's requires a rate of return of 14 percent? Why or why not?
no; The NPV is $139,985.20
yes; The NPV is $22,572.46
yes; The NPV is $230,957.13
yes; The NPV is $113,985.20
yes; The NPV is $154,980.00


4. Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $670,000. The lot was recently appraised at $697,000. At the time of the purchase, the company spent $33,000 to grade the lot and another $4,100 to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The company now wants to build a new retail store on the site. The building cost is estimated at $1,200,000. What amount should be used as the initial cash flow for this building project?
$1,900,300
$1,904,400
$1,877,400
$1,870,000
$1,897,000


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Top Answer

Please see the attached... View the full answer

8438907.xlsx

SOLUTION 1:
Depreciation Expense = Depreciation Rate * Cost of Asset
Depreciation Expense = 32% * $56,000
Depreciation Expense $17,920.00 SOLUTION 2:
Year Cash Flows 0
1
2
3 $(65,000.00)...

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