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Posted on Jul 17, 2024

A company acquired a bus for $110,000, which had a $3,000 delivery fee, $2,000/year maintenance cost, and contributes $40,000/year of revenue. The bus was depreciated

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A company acquired a bus for $110,000, which had a $3,000 delivery fee, $2,000/year maintenance cost, and contributes $40,000/year of revenue. The bus was depreciated according to GDS with an effective tax rate of 21%. What is the economic value added in year 5 with after-tax MARR being 10%? [HINT: Use tables 7-2 and 7-3] TABLE 7-2 MACRS Class Lives and Recovery Periodsa Asset Class Class Life Recovery Period GDSb ADS 7 10 5 5 00.11 00.12 10 6 5 5 5 5 3 00.22 00.23 00.241 00.242 00.26 01.1 10.0 13.2 13.3 15.0 22.3 24.4 Description of Assets Office furniture and equipment Information systems, including computers Automobiles, taxis Buses Light general purpose trucks Heavy general purpose trucks Tractor units for use over the road Agriculture Mining Production of petroleum and natural gas Petroleum refining Construction Manufacture of carpets Manufacture of wood products and furniture Manufacture of chemicals and allied products Manufacture of rubber products Manufacture of cement Manufacture of fabricated metal products Manufacture of electronic components, products, and systems Manufacture of motor vehicles Manufacture of aerospace products Telephone central office equipment Electric utility steam production plant Gas utility distribution facilities Recreation 3 9 4 6 4 10 10 14 16 6 9 10 5 9 5 6 4 10 10 14 16 6 9 10 28.0 9.5 5 9.5 30.1 32.2 34.0 36.0 14 20 12 6 7 15 7 5 14 20 12 6 37.11 37.2 48.12 49.13 49.21 79.0 12 10 18 28 35 10 7 7 10 20 20 7 12 10 18 28 35 10 a Partial listing abstracted from How to Depreciate Property, IRS Publication 946, Tables B-1 and B-2, 2006. Also the GDS property class. b TABLE 7-3 GDS Recovery Rates (rk) for the Six Personal Property Classes Depreciation Rate for Recovery Period Year 3-yeara 5-yeara 7-yeara 10-yeara 15-yearb 20-yearb 1 0.3333 0.2000 0.1429 0.1000 0.0500 0.0375 2 0.4445 0.3200 0.2449 0.1800 0.0950 0.0722 3 0.1481 0.1920 0.1749 0.1440 0.0855 0.0668 4 0.0741 0.1152 0.1249 0.1152 0.0770 0.0618 5 0.1152 0.0893 0.0922 0.0693 0.0571 0.0576 6 7 0.0892 0.0893 0.0446 8 9 10 0.0737 0.0655 0.0655 0.0656 0.0655 0.0623 0.0590 0.0590 0.0591 0.0590 0.0528 0.0489 0.0452 0.0447 0.0447 11 0.0328 0.0591 12 13 0.0590 0.0591 0.0590 0.0591 0.0446 0.0446 0.0446 0.0446 0.0446 14 15 0.0295 16 17 18 19 20 21 0.0446 0.0446 0.0446 0.0446 0.0446 0.0223 Source: IRS Publication 946. Depreciation. Washington, D.C.: U.S. Government Printing Office, for 2006 tax returns. These rates are determined by applying the 200% DB method (with switchover to the SL method) to the recovery period with the half-year convention applied to the first and last years. Rates for each period must sum to 1.0000. These rates are determined with the 150% DB method instead of the 200% DB method (with switchover to the SL method) and are rounded off to four decimal places. A company acquired a bus for $110,000, which had a $3,000 delivery fee, $2,000/year maintenance cost, and contributes $40,000/year of revenue. The bus was depreciated according to GDS with an effective tax rate of 21%. What is the economic value added in year 5 with after-tax MARR being 10%? [HINT: Use tables 7-2 and 7-3] TABLE 7-2 MACRS Class Lives and Recovery Periodsa Asset Class Class Life Recovery Period GDSb ADS 7 10 5 5 00.11 00.12 10 6 5 5 5 5 3 00.22 00.23 00.241 00.242 00.26 01.1 10.0 13.2 13.3 15.0 22.3 24.4 Description of Assets Office furniture and equipment Information systems, including computers Automobiles, taxis Buses Light general purpose trucks Heavy general purpose trucks Tractor units for use over the road Agriculture Mining Production of petroleum and natural gas Petroleum refining Construction Manufacture of carpets Manufacture of wood products and furniture Manufacture of chemicals and allied products Manufacture of rubber products Manufacture of cement Manufacture of fabricated metal products Manufacture of electronic components, products, and systems Manufacture of motor vehicles Manufacture of aerospace products Telephone central office equipment Electric utility steam production plant Gas utility distribution facilities Recreation 3 9 4 6 4 10 10 14 16 6 9 10 5 9 5 6 4 10 10 14 16 6 9 10 28.0 9.5 5 9.5 30.1 32.2 34.0 36.0 14 20 12 6 7 15 7 5 14 20 12 6 37.11 37.2 48.12 49.13 49.21 79.0 12 10 18 28 35 10 7 7 10 20 20 7 12 10 18 28 35 10 a Partial listing abstracted from How to Depreciate Property, IRS Publication 946, Tables B-1 and B-2, 2006. Also the GDS property class. b TABLE 7-3 GDS Recovery Rates (rk) for the Six Personal Property Classes Depreciation Rate for Recovery Period Year 3-yeara 5-yeara 7-yeara 10-yeara 15-yearb 20-yearb 1 0.3333 0.2000 0.1429 0.1000 0.0500 0.0375 2 0.4445 0.3200 0.2449 0.1800 0.0950 0.0722 3 0.1481 0.1920 0.1749 0.1440 0.0855 0.0668 4 0.0741 0.1152 0.1249 0.1152 0.0770 0.0618 5 0.1152 0.0893 0.0922 0.0693 0.0571 0.0576 6 7 0.0892 0.0893 0.0446 8 9 10 0.0737 0.0655 0.0655 0.0656 0.0655 0.0623 0.0590 0.0590 0.0591 0.0590 0.0528 0.0489 0.0452 0.0447 0.0447 11 0.0328 0.0591 12 13 0.0590 0.0591 0.0590 0.0591 0.0446 0.0446 0.0446 0.0446 0.0446 14 15 0.0295 16 17 18 19 20 21 0.0446 0.0446 0.0446 0.0446 0.0446 0.0223 Source: IRS Publication 946. Depreciation. Washington, D.C.: U.S. Government Printing Office, for 2006 tax returns. These rates are determined by applying the 200% DB method (with switchover to the SL method) to the recovery period with the half-year convention applied to the first and last years. Rates for each period must sum to 1.0000. These rates are determined with the 150% DB method instead of the 200% DB method (with switchover to the SL method) and are rounded off to four decimal places