Your company is contemplating the purchase of a large stamping machine. The machine will cost $167,000. With additional transportation and installation costs of $5,000 and $11,000, respectively, the cost basis for depreciation purposes is $183,000. Its MV at the end of five years is estimated as $34,000. The IRS has assured you that this machine will fall under a three year MACRS class life category. The justifications for this machine include $45,000 savings per year in labor and $29,000 savings per year in reduced materials. The before-tax MARR is 24% per year, and the effective income tax rate is 28%. Assume the stamping machine will be used for only three years, owing to the company's losing several government contracts. The MV at the end of year three is $47,000. What is the income tax owed at the end of year three owing to depreciation recapture (capital gain)? Click the icon to view the GDS Recovery Rates (r) for the 3-year property class. Choose the correct answer below. OA. The income tax owed at the end of year three is $19,889. OB. The income tax owed at the end of year three is $18,000. OC. The income tax owed at the end of year three is $9,363. O D. The income tax owed at the end of year three is $5,569. O E. The income tax owed at the end of year three i $33,440.
Your company is contemplating the purchase of a large stamping machine. The machine will cost $167,000. With additional transportation and installation costs of $5,000 and $11,000, respectively, the cost basis for depreciation purposes is $183,000. Its MV at the end of five years is estimated as $34,000. The IRS has assured you that this machine will fall under a three year MACRS class life category. The justifications for this machine include $45,000 savings per year in labor and $29,000 savings per year in reduced materials. The before-tax MARR is 24% per year, and the effective income tax rate is 28%. Assume the stamping machine will be used for only three years, owing to the company's losing several government contracts. The MV at the end of year three is $47,000. What is the income tax owed at the end of year three owing to depreciation recapture (capital gain)? Click the icon to view the GDS Recovery Rates (r) for the 3-year property class. Choose the correct answer below. OA. The income tax owed at the end of year three is $19,889. OB. The income tax owed at the end of year three is $18,000. OC. The income tax owed at the end of year three is $9,363. O D. The income tax owed at the end of year three is $5,569. O E. The income tax owed at the end of year three i $33,440.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 14P
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Transcribed Image Text:Your company is contemplating the purchase of a large stamping machine. The machine will cost $167,000. With additional transportation and installation costs of $5,000 and $11,000, respectively, the cost basis for
depreciation purposes is $183,000. Its MV at the end of five years is estimated as $34,000. The IRS has assured you that this machine will fall under a three year MACRS class life category. The justifications for this
machine include $45,000 savings per year in labor and $29,000 savings per year in reduced materials. The before-tax MARR is 24% per year, and the effective income tax rate is 28%. Assume the stamping machine will be
used for only three years, owing to the company's losing several government contracts. The MV at the end of year three is $47,000. What is the income tax owed at the end of year three owing to depreciation recapture
(capital gain)?
E Click the icon to view the GDS Recovery Rates (rg) for the 3-year property class.
Choose the correct answer below.
O A. The income tax owed at the end of year three is $19,889.
O B. The income tax owed at the end of year three is $18,000.
O C. The income tax owed at the end of year three is $9,363.
O D. The income tax owed at the end of year three is $5,569.
O E. The income tax owed at the end of year three is $33,440.
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