Check my work 12 Required information [The following information applies to the

Question

Check my work 12 Required information [The following information applies to the questions displayed below.) Part 4 of 4 Manning Corporation is considering a new project requiring a $110,000 investment in test equipment with no salvage value. The project would produce $68,500 of pretax income before depreciation at the end of each of the next six years. The company's income tax rate is 36%. 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. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.) 174 points eBook Print References Straight-Line MACRS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Totals Depreciation Depreciation $ 22,000 35,200 21,120 12,672 12,672 6,336 $110,000 11,000 22,000 22,000 22,000 22,000 11,000 $110,000 4. Compute the net present value of the investment if MACRS depreciation is used. Use 6% as the discount rate Chart Values are Based o

Explanation / Answer

Step-1:Calculation of annual cash inflows Year Pretax income before depreciation Depreciation Expense Pretax income Tax Expense Net Income Depreciation Annual Cash inflows a b c=a-b d=c*36% e=c-d f=b g=e+f 1 $               68,500 $               22,000 $            46,500 $ 16,740 $            29,760 $         22,000 $           51,760 2                   68,500                   35,200 $            33,300 $ 11,988 $            21,312 $         35,200 $           56,512 3                   68,500                   21,120 $            47,380 $ 17,057 $            30,323 $         21,120 $           51,443 4                   68,500                   12,672 $            55,828 $ 20,098 $            35,730 $         12,672 $           48,402 5                   68,500                   12,672 $            55,828 $ 20,098 $            35,730 $         12,672 $           48,402 6                   68,500                     6,336 $            62,164 $ 22,379 $            39,785 $           6,336 $           46,121 Step-2:Calculation of net present value at 6% discount rate Year Net Cash inflow x PV Factor = Present Value 1 $               51,760 x                 0.9434 = $            48,830 2 $               56,512 x                 0.8900 = $            50,295 3 $               51,443 x                 0.8396 = $            43,193 4 $               48,402 x                 0.7921 = $            38,339 5 $               48,402 x                 0.7473 = $            36,169 6 $               46,121 x                 0.7050 = $            32,513 Total $         2,49,339 Less: Cost of investment $         1,10,000 Net Present Value $         1,39,339

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