Angiletta Corporation is considering a new project requiring a $97,000 investmen

Question

Angiletta Corporation is considering a new project requiring a $97,000 investment in test equipment with no salvage value. The project would produce $72,000 of pretax income before depreciation at the end of each of the next six years. The company%u2019s income tax rate is 38%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (Use Table B.1)

  

PLEASE MAKE YOUR RESPONSES EASY TO FOLLOW, CORRECT AND EASY TO FIND ANSWERS WILL BE GIVEN CREDIT FOR POINTS

Prepare a five-column table that reports amounts (assuming use of straight-line depreciation) for each of the following for each of the six years: (a) pretax income before depreciation, (b) straight-line depreciation expense, (c) taxable income, (d) income taxes, and (e) net cash flow. Net cash flow equals the amount of income before depreciation minus the income taxes. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Prepare a five-column table that reports amounts (assuming use of MACRS depreciation) for each of the following for each of the six years: (a) pretax income before depreciation, (b) MACRS depreciation expense, (c) taxable income, (d) income taxes, and (e) net cash flow. Net cash flow equals the income amount before depreciation minus the income taxes. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Compute the net present value of the investment if straight-line depreciation is used. Use 8% as the discount rate. (Round "PV Factor" to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Compute the net present value of the investment if MACRS depreciation is used. Use 8% as the discount rate. (Round "PV Factor" to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Straight-Line
Depreciation MACRS
Depreciation Year 1 $ 9,700 $ 19,400 Year 2 19,400 31,040 Year 3 19,400 18,624 Year 4 19,400 11,174 Year 5 19,400 11,174 Year 6 9,700 5,588    Totals $ 97,000 $ 97,000   

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1:

Part 2:

Part 3:

NPV = -97000 + 48326*.9259 + 52012*.8573 + 52012*.7938 + 52012*.7350 + 52012*.6806 + 48326*.6302 = 137705

Part 4:

NPV = -97000 + 52012*.9259 + 56435*.8573 + 51717*.7938 + 48886*.7350 + 48886*.6806 + 46763*.6302 = 139266

Thanks.

Income Before
Depreciation Straight Line Depreciation Taxable Income Income Taxes Net Cash Flows Year 1 72000 9700 62300 23674 48326 Year 2 72000 19400 52600 19988 52012 Year 3 72000 19400 52600 19988 52012 Year 4 72000 19400 52600 19988 52012 Year 5 72000 19400 52600 19988 52012 Year 6 72000 9700 62300 23674 48326

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