A firm purchases $36,800 worth of computer equipment to be used in a 4-year project. The firm
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A firm purchases $36,800 worth of computer equipment to be used in a 4-year project. The firm estmates that its market value after 4 years will be 20% of its original value. Computers are classified by the IRS in the 5-year property class and can be depreciated using the Modified Accelerated Cost Recovery System (MACRS) given below. The firm's cost of capital is 8.0% and its combined federal & state marginal corporate tax rate is 27.4%.
Year | MACRS Allowance | |||
1 | 20.00% | Base 0 = | $36,800.00 | |
2 | 32.00% | Salvage rate = | 20.00% | |
3 | 19.20% | Cost of capital = | 8.00% | |
4 | 11.52% | Corp. tax rate = | 27.40% | |
5 | 11.52% | Project years = | 4 | |
6 | 5.76% |
What is the depreciation allowance for year 2?
What will be the firm's CAPEX in year 4 if this is the only fixed asset that is salvaged? |
Related Book For
Modern Advanced Accounting in Canada
ISBN: 978-1259087554
8th edition
Authors: Hilton Murray, Herauf Darrell
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