Assume the same facts as in Exercise 22-23 except that City Hospital is a taxpaying entity. The
Question:
Assume the same facts as in Exercise 22-23 except that City Hospital is a taxpaying entity. The income tax rate is 30% for all transactions that affect income taxes.
Data From Exercise 22-23
City Hospital, a nonprofit organization, estimates that it can save $28,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eyetesting machine at a cost of $110,000. No terminal disposal value is expected. City Hospital’s required rate of return is 14%. Assume all cash flows occur at year-end except for initial investment amounts. City Hospital uses straight-line depreciation.
Required
1. Complete requirement 1 of Exercise 22-23 taking the income tax rate of 30% into account.
2. How would your computations in requirement 1 be affected if the special-purpose machine had a $10,000 terminal disposal value at the end of 10 years? Assume depreciation deductions are based on the $110,000 purchase cost and zero terminal disposal value using the straight-line method. Answer briefly in words without further calculations.
Step by Step Answer:
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 9780135628478
17th Edition
Authors: Srikant M. Datar, Madhav V. Rajan