Question 1. The table below contains entries from the income statement of a hypothetical company-Imperial Machines...

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Question 1. The table below contains entries from the income statement of a hypothetical company-Imperial Machines - over 6 years. Table 1: Excerpts from the Income Statement of Imperial Machines Year 1 2 3 4 5 6 Sales (Revenues) $70 $70 $70 $70 $70 $70 Cost of Goods Sold (COGS) $5 $5 $5 $5 $5 $5 Selling, General & Administrative Expenses (SG&A) $5 $5 $5 $5 $5 $5 EBITDA $60 $60 $60 $60 $60 $60 - Depreciation = EBIT (operating income) Interest Expense $0 $5 S5 $5 $5 $5 $5 = EAIBT (or EBT) Corporate Income Tax (at 40%) = Net Income The next table records the relevant line form the Cash Flow Statement (note capital expenditures are recorded with a negative sign). Table 2: Excerpts from the Cash Flow Statement of Imperial Machines Year Capital Expenditures a 1 2 3 4 5 6 -$75 -$75 If the machines are assumed to have a 3 year life, and were bought at the beginning of the period so depreciate in the year that they were bought, and using a simple straight line depreciation rule then: a) Complete the Income statement above assuming a tax rate of 40% on all operating income after interest? b) Repeat the exercise, but now assume the capital expenditure is treated as a cost of doing business and the full cost is recognised in SG&A in the same year as the expenditure? c) What difference does this accounting treatment imply for the total tax payments of Imperial Machines? Question 1. The table below contains entries from the income statement of a hypothetical company-Imperial Machines - over 6 years. Table 1: Excerpts from the Income Statement of Imperial Machines Year 1 2 3 4 5 6 Sales (Revenues) $70 $70 $70 $70 $70 $70 Cost of Goods Sold (COGS) $5 $5 $5 $5 $5 $5 Selling, General & Administrative Expenses (SG&A) $5 $5 $5 $5 $5 $5 EBITDA $60 $60 $60 $60 $60 $60 - Depreciation = EBIT (operating income) Interest Expense $0 $5 S5 $5 $5 $5 $5 = EAIBT (or EBT) Corporate Income Tax (at 40%) = Net Income The next table records the relevant line form the Cash Flow Statement (note capital expenditures are recorded with a negative sign). Table 2: Excerpts from the Cash Flow Statement of Imperial Machines Year Capital Expenditures a 1 2 3 4 5 6 -$75 -$75 If the machines are assumed to have a 3 year life, and were bought at the beginning of the period so depreciate in the year that they were bought, and using a simple straight line depreciation rule then: a) Complete the Income statement above assuming a tax rate of 40% on all operating income after interest? b) Repeat the exercise, but now assume the capital expenditure is treated as a cost of doing business and the full cost is recognised in SG&A in the same year as the expenditure? c) What difference does this accounting treatment imply for the total tax payments of Imperial Machines?