A firm has earnings of $15,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $7,000. The equipment will be depreciated over five years, and the firm pays 20 percent of its earnings in taxes. What are the earnings and cash flows for the firm in years 2 and 5, using the two methods of depreciation? Use Exhibit 9.4 to answer the questions. Round your answers to the nearest dollar.

A firm has earnings of $15,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $7,000. The equipment will be depreciated over five years, and the firm pays 20 percent of its earnings in taxes. What are the earnings and cash flows for the firm in years 2 and 5, using the two methods of depreciation? Use Exhibit 9.4 to answer the questions. Round your answers to the nearest dollar. Modified Accelerated Straight-line Year 2 Year 5 Cost Recovery Year 2 Year 5 Earnings before depreciation and taxes $ $ $ Depreciation expense Earnings after depreciation Taxes (20% tax rate) DONDE DULODE TITION Net earnings $ Cash flow $ Percentage of Cost Depreciated Over: EXHIBIT 9.4 Depreciation Schedules under the Modified Accelerated Cost Recovery System Recovery Year 1 20 Years 3.79% 3 Years 33.00% 45.00 15.00 7.00 N 5 Years 20.00% 32.00 19.20 11.52 11.52 5.76 7.22 6.68 3 4 4 7 Years 14.28% 24.49 17.49 12.49 8.93 8.93 8.93 4.46 6.18 5 10 Years 10.00% 18.00 14.40 11.52 9.22 7.37 6.55 6.55 6.55 6.55 3.29 6 7 15 Years 5.00% 9.50 8.55 7.69 6.93 6.23 5.90 5.90 5.90 5.90 5.90 5.90 5.90 8 00 9 10 11 12 13 5.71 5.28 4.89 4.52 4.46 4.46 4.46 4.46 4.46 4.46 4.46 4.46 4.46 4.46 4.46 4.46 2.25 14 5.90 5.90 3.00 15 16 17 18 19 20 21