Question: Fred's Rodent Control Corporation has been using a low-frequency sonar device to locate subterranean pests. This device was purchased 5 years ago for $18,000. The

Fred's Rodent Control has been using a low-frequency sonar device to locate subterranean pests. This device was purchased 5 years ago for $18,000. The device has been depreciated using SOYD depreciation with an 8-year depreciable life and a of $3600. Presently, it could be sold to the cat next door for $7000. If it is kept for the next 3 years, its market value is expected to drop to $1600. A new lightweight subsurface heat-sensing searcher (SHSS) is available for $10,000 that would improve the annual net income by $500 for each of the next 3 years. The SHSS would be depreciated as a 5-year class property, using MACRS. At the end of 3 years, the SHSS should have a market value of $4000. Fred's Rodent Control is a profitable enterprise subject to a 40% tax rate?
(a) Construct the after-tax cash flow for the old sonar unit for the next 3 years.
(b) Construct the after-tax cash flow for the SHSS unit for the next 3 years.
(c) Construct the after-tax cash flow for the difference between the SHSS unit and the old sonar unit for the next 3 years.
(d) Should Fred buy the new SHSS unit if his is 20%? You do not have to calculate the incremental rate of return; just show how you reach your decision.

Step by Step Solution

★★★★★

3.26 Rating (161 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a Sonar SOYD 82 9 36 D Dyr 136 18000 3600 400 Original Year j SOYD Deprec Book Value 1 ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

942-B-A-F-A (3452).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

A piece of equipment costing 100000 and a salvage value of 15000 was expected to last 8 years After the third year it was determined the total life would be on 6 years Compute the straightline...

A building was purchased 5 years ago for 1,000000$ depreciated straight line to 100000$ (land value) over 30 years. its now worth 600000$ (including 100000$ land). the project requires improvement to...

The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $55,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $5,500 per year...

Fred's Rodent Control Corporation has been using a low-frequency sonar device to locate subterranean pests. This device was purchased 5 years ago for $18,000. The device has been depreciated using...

Baldwin Wooster Corporation manufactures auto parts for domestic and imported automobiles. Their core products have been exhaust systems like mufflers and catalytic converters, and ride control...

APPENDIX A WORKSHEET 1 Traditional Costing Step 1: Calculate the single predetermined overhead rate using DL hours as your cost driver. Overhead Cost Pool (Cost Driver) Total Estimated Costs Total...

__________________ is legal responsibility for the wrong committed by another person, in this case the employer's liability for the wrongs committed by the employee. Fred, George, and Herb are...

Step 2: Count the actual amount of cost driver in your rodeo. (Hint: The number of people in your materials represents the total number of DL hours for your rodeo.) Please tell me how to do this or...

Assume that you are Jack Devine, the Director, Sales and Research for a Manufacturing company, Johnson Industries. You have received an email from Shah Lit, a Research Manager within your company....

Problem 2 : Assume on April 1 , Fred contracts with MNO Corporation where Fred asks MNO Corporation to deliver to Fred 1 0 0 barrels of chlorine by May 1 , and if so , Fred will pay MNO Corporation $...

1. Why are statements for several Capital Projects Funds presented in combining form? 2. A Capital Projects Fund is, in essence, a special type of Special Revenue Fund. Explain. 3. Why would a...

Find the current in each resistor infigure. 20.0 V 30.0 0 10.0 V 5.00 N 20.0 2

1, 2, 3, 4, 5, 6 Morgan (age 45) is single and provides more than 50% of the support of Rosalyn (a family friend), Flo (a niece, age 18), and Jerold (a nephew, age 18). Both Rosalyn and Flo live with...

Interpret the phrases There is no such thing as a free lunch and A free lunch is possible in terms of the production possibilities curve.

Explain sustainable income. What relationship does this concept have to the treatment of irregular items on the income statement?

Indicate which of the following items would be reported as an extraordinary item on Denison Corporations income statement. (a) Loss from damages caused by a volcano eruption. (b) Loss from the sale...

Consider the following mixture model for these data: For each study participant there is an unobserved group membership variable Xi which is equal to 1 or 2 with probability p and 1 - p. If Xi = 1...

The UMUC Daily News reported that the color distribution for plain M&M's was: 40% brown, 20% yellow, 20% orange, 10% green, and 10% tan. Each piece of candy in a random sample of 100 plain M&M's was...

The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation, Dividends at the end of the current year will be $1.64. The...