An injection molding machine can be purchased and installed for $90,000. It is e
ID: 2648135 • Letter: A
Question
An injection molding machine can be purchased and installed for $90,000. It is expected to be kept in service for eight years. It is believed that $10,000 can be obtained when the machine is disposed of the at the end of year eight. The net annual value added that can be attributed to this machine is constant over eight years and amounts to $15,000. An effective income tax-rate of 40% is used by the company, and the before-tax MARR equals 25% per year. Use 150% Declining Balance depreciation method.
Answer the following questions based on above given information.
a) What are the depreciation amounts in year one and year eight?
b) What are the ATCFs for this machine at the end of years 1 and 6?
c) What are the BTCF, TI, T and ATCF of year 8?
Explanation / Answer
Answer a : Depreciation for first year will be 16,875 and for 8th year it will be 3,945
So declining balance depreciation rate is 18.75%
Answer b & c : b; ATCFs for year 1 and 6 are 15,750 and 11,390 from the below table calculations
Answer c; Year 8 BTCF is 25,000 (Including salvage value), TI is 3,962, Tax is -1585 and ATCF is 23,415 from the below table
In the above table, 8s is for salvage value, and in depreciation column of 8s, it is book value remaining of machine for tax purpose
Year Book value at start Depreciation 1 90,000 16,875 2 73,125 13,711 3 59,414 11,140 4 48,274 9,051 5 39,223 7,354 6 31,868 5,975 7 25,893 4,855 8 21,038 3,945