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A firm has earnings of $22,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $11,000. The
A firm has earnings of $22,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $11,000. The equipment will be depreciated over five years, and the firm pays 25 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. Earnings before depreciation and taxes Depreciation expense Earnings after depreciation Taxes (25% tax rate) Net earnings Cash flow Year 2 Straight-line $ Year 5 $ Modified Accelerated Cost Recovery Year 2 $ SA $ "Year 5
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