1. Heald and Swenson Inc. purchased a drill press for $850,000 one year and nine months ago. The asset has a six-year life and has been depreciated according to the following accelerated schedule.

Year Percent of Cost

1 ................55%

2 ................20%

3 ................10%

4 ..................5%

5 ..................5%

6 ..................5%

The press was just sold for $475,000. The firms marginal tax rate is 35%. Calculate Heald and Swensons taxable profit and cash flow on the sale. Assume depreciation is spread evenly within each year.

2. Use the following tax brackets for taxable income:

Bracket: Tax Rate

0$10,000 15%

$10,000$50,000 25%

$50,000$250,000 30%

Over $250,000 35%

Compute the average tax rate for the following taxable income amounts

a. $20,000

b. $125,000

c. $350,000

d. $1,000,000

3. Why dont we calculate the difference in the equity account between the beginning and end of the year and consider that difference as a source or use of cash? Why do we similarly exclude the cash account? Explain.

4. What are free cash flows? Who is likely to be most interested in them? Why?