Renee ENGR 335 Final $17(1) -Saved to this PC sign Layout References Mailings Re

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Renee ENGR 335 Final $17(1) -Saved to this PC sign Layout References Mailings Review View Search Heading 3 Heading 1 Styles .11Norrmal | ,No Spac., Heading 2 :-.ta . Paragraph Titlo x' £ .y.a- Problem 2 (30 points) Mary Meek, the owner of a flower shop, is considering buying a new van for deliveries. She has estimated that the new van would result in a savings of $25,000 per year over the old van. The new varn would cost $45,000 and will have a useful life of six years (MACRS 5-year recovery pe time it will be sold for $4,500 Mary uses a 15% after-tax MARR and the van would be depreciated using MACRS. Should Mary purchase riod) at which the van on an after-tax basis? Mary uses a 40% tax rate. Determine the depreciation schedule for straight line, 150% declining balance, and MACRS depreciation methods. (10 points) a. b. Using your MACRS depreciation values and the information above, determine if the van should be purchased on an after tax basis. (20 points) EOY Straight Line Depreciation 150% DB Depreciation MACRS Depreciation EOY CFBT TI Tax CFAT DOLL

Explanation / Answer

EOY Straight line Depreciation 150% DB depreciation MACRS depreciation 1 6750 11250 9000 2 6750 8438.00 14400.00 3 6750 6328 8640 4 6750 4746 5184 5 6750 3560 5184 6 6750 2670 2592 EOY CFBT d TI Tax CFAT Pv Pv 0 -45000 0 0 0 -45000 1 -45000 1 25000 9000 16000 6400 18600 0.869565 16173.91 2 25000 14400 10600 4240 20760 0.756144 15697.54 3 25000 8640 16360 6544 18456 0.657516 12135.12 4 25000 5184 19816 7926.4 17073.6 0.571753 9761.886 5 25000 5184 19816 7926.4 17073.6 0.497177 8488.597 6 29500 2592 26908 10763.2 18736.8 0.432328 8100.436 NPV 25357.49 Van should be purchased as NPV is positive

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