Existing Machine
The existing machine posed safety challenges to the staff members. A competitor had offered $35,000 cash for the machine, an amount that represented its current book value .If Davidson opted to keep the machine, Magic would continue to claim depreciation of $6,000 per year for each of the next five years, at which point the machine would be unserviceable and would be sold for $5,000as scrap
New Machine
The new machine, Delta A390, offered increased capacity surpassing Magic Timber’s need. The new machine cost $140,000, and the tax office allowed straight line depreciation of 10 per cent per annum. After five years, Magic would sell the Delta for $60,000. To fund the purchase, the bank offered a 6% annum loan. Given the technological advancements of the Delta over the Matrix, Davidson expected that he could achieve significant savings in both labor and electricity costs. For labor, in the first year, Davidson forecasted a 10 per cent cost reduction (the existing rate was $30 per hour), based on a 35-hour week in a 50-week year. This labor saving would then increase by a fixed $250 each year. For electricity, in the first year, the saving was expected to be 10 per cent as well. Electricity costs averaged $5.625 per hour, 24 hours a day, seven days a week in a 50 week year. The electricity saving would then increase by a fixed $75 per year.

1. Create a table to determine the annual tax effects (increase or decrease to taxes paid) if they decide to purchase the new machine.
   1. Assume a tax rate of 30%.
   2. Depreciate assets based on the information in the case (do not use MACRS).
   3. Identify and label each adjustment to taxable income, don’t just present the net increase/decrease for each year.