1.

Use the table below to answer this question.

MACRS 5-year property
Year	Rate
1	20.00%
2	32.00%
3	19.20%
4	11.52%
5	11.52%
6	5.76%

Ronnie's Custom Cars purchased some fixed assets two years ago for $35,000. The assets are classified as 5-year property for MACRS. Ronnie is considering selling these assets now so he can buy some newer fixed assets which utilize the latest in technology. Ronnie has been offered $19,500 for his old assets. What is the net cash flow from the salvage value if the tax rate is 34 percent?

$18,582.00

$16,297.20

$14,926.32

$16,800.00

$19,500.00

3.

Dependable Motors just purchased some MACRS 5-year property at a cost of $216,000. The MACRS rates are .2, .32, and .192 for years 1 to 3, respectively. Which one of the following will correctly give you the book value of this equipment at the end of year 2?

$216,000 / (1 + .2 + .32)

$216,000 (1 - .2 - .32)

$216,000 (.20 + .32)

[$216,000 (1 - .20)] (1 - .32)

$216,000 / [(1 + .20)(1 + .32)]

4.

Consider an asset that costs $595,000 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $180,000. If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset? (Do not round intermediate calculations.)

Aftertax salvage value 5. Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 9 years ago for $6 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $9.8 million. The company wants to build its new manufacturing plant on this land; the plant will cost $13.2 million to build, and the site requires $1,274,000 worth of grading before it is suitable for construction. Required : What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? rev: 09_18_2012 $25,487,700 $19,503,040 $24,274,000 $23,000,000 $21,726,000

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