The Simon Machine Tools Company is considering purchasing a new set of machine tools to process special orders. The following financial information is available.
• Without the project, the company expects to have a taxable income of $350,000 each year from its regular business over the next three years.
• With the three-year project, the purchase of a new set of machine tools at a cost of $50,000 is required. The equipment falls into the MACRS three-year class. The tools will be sold for $10,000 at the end of project life. The project will be bringing in additional annual revenue of $80,000, but it is expected to incur additional annual operating costs of $20,000.
(a) What are the additional taxable incomes (due to undertaking the project) during each of years 1 through 3?
(b) What are the additional income taxes (due to undertaking the new orders) during each of years 1 through 3?
(c) Compute the gain taxes when the asset is disposed of at the end of year 3.