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A firm is considering a $80,200 purchase of equipment. The equipment would be depreciated to zero using the 5-year MACRS depreciation schedule. MACRS table:
A firm is considering a $80,200 purchase of equipment. The equipment would be depreciated to zero using the 5-year MACRS depreciation schedule. MACRS table: Year 3-year class 1 33.33% 2 44.45% 14.81% 7.41% 19 3 4 5 6 7 8 5-year class 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% 7-year class 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% Part A: How much would depreciation be in year 3? Part B: What would the equipment's book value be after three years? Part C: Suppose that at the end of three years the equipment is sold for $80,200. What would the salvage cash flow (i.e., the net cash flow after taxes) be at that time? Please assume that the firm has a tax rate of 35%.
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Part A The depreciation expense in year 37 would be calculated as follows Depreciation Expense Book Value x Depreciation Rate Using the 5year MACRS depreciation schedule the depreciation rate for year ...Get Instant Access to Expert-Tailored Solutions
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