How do I find the depreciation, because it is not just 20% of the $13400?
Homework: Chapter 11 Homework Save Score: 0 of 1 pt 10 of 10 (6 complete) HW Score: 60%, 6 of 10 p Integrative-Determining net cash flows Atlantic Drydock is replacing an existing hoist and is considering one of two newer, more efficient pieces of equipment. The existing hoist is 3 years old, cost $32,100, and is being depreciated under MACRS using a 5-year recovery period. Although the existing hoist has only 3 years (years 4, 5, and 6) of depreciation remaining under MACRS, it has a remaining usable life of 5 years. Hoist A, one of the two possible replacement hoists, costs $39,400 to purchase and $7,600 to install. It has a 5-year usable life and will be depreciated under MACRS using a 5-year recovery period. Hoist B costs $54,900 to purchase and $6,100 to install. It also has a 5-year usable life and will be depreciated under MACRS using a 5-year recovery period. Increased investments in net working capital will accompany the decision to acquire hoist A or hoist B. Purchase of hoist A would result in a $3,600 increase in net working capital; hoist B would result in a $6,000 increase in net working capital. The projected earnings before depreciation, interest, and taxes with each alternative hoist and the existing hoist are given in the following table The existing hoist can currently be sold for $18,100 and will not incur any removal or cleanup costs. At the end of 5 years, the existing hoist can be sold to net $1,000 before taxes. Hoists A and B can be sold to net $12,100 and $19,700 before taxes, respectively at the end of the 5-year period (see MACRS table ). The firm is subject to a 40% tax rate. a. Calculate the initial investment associated with each alternative. Data Table b. Calculate the incremental operating cash flows associated with each alternative. (Note: Be sure to consider the depreciation in year 6. c. Calculate the terminal cash flow at the end of year 5 associated with each alternative. d. Depict on a time line the relevant cash flows associated with each alternative. b. Calculate the incremental operating cash flows associated with each alternative. (Note: Be sure to consider the depreciation in year 6. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Calculate the incremental operating cash flows associated with the existing hoist below: (Round to the nearest dollar.) ation Percentages by Recovery Year Using MACRS for Operating Cash Inflows for Existing Hoist Classes - X Data Table Percentage by recovery year* Year 1 3 years 5 years 7 years 10 years Profits before depreciation and taxes $ 13,4 33% 20% 14% 10% 45% 32% 25% 18% Depreciation $ (Click on the icon located on the top-right corner of the data table below in order to copy its 15% 19% 18% 14% contents into a spreadsheet.) Net profits before taxes $ 7% 12% 12% 12% $ 12% Earnings before Taxes 9% 9% depreciation, interest, and taxes 5% 9% 8% Net profits after taxes $ Year With hoist A With hoist B With existing hoist 9% 7% $ 1 $21,300 $22,300 $13,400 Operating cash inflows 4% 6% 2 21,300 24,500 13,400 6% 3 21,300 26.200 13,400 6% Enter any number in the edit fields and then click Check A 4 21,300 26,200 13,400 4% 5 21,300 26,200 13,400 100% 100% 100% 100% have been rounded to the nearest whole percent to simplify calculations while remaining calculate the actual depreciation for tax purposes, be sure to apply the actual Print Done ges or directly apply double-declining balance (200%) depreciation using the half-year 21 parts Homework: Chapter 11 Homework Save Score: 0 of 1 pt 10 of 10 (6 complete) HW Score: 60%, 6 of 10 p Integrative-Determining net cash flows Atlantic Drydock is replacing an existing hoist and is considering one of two newer, more efficient pieces of equipment. The existing hoist is 3 years old, cost $32,100, and is being depreciated under MACRS using a 5-year recovery period. Although the existing hoist has only 3 years (years 4, 5, and 6) of depreciation remaining under MACRS, it has a remaining usable life of 5 years. Hoist A, one of the two possible replacement hoists, costs $39,400 to purchase and $7,600 to install. It has a 5-year usable life and will be depreciated under MACRS using a 5-year recovery period. Hoist B costs $54,900 to purchase and $6,100 to install. It also has a 5-year usable life and will be depreciated under MACRS using a 5-year recovery period. Increased investments in net working capital will accompany the decision to acquire hoist A or hoist B. Purchase of hoist A would result in a $3,600 increase in net working capital; hoist B would result in a $6,000 increase in net working capital. The projected earnings before depreciation, interest, and taxes with each alternative hoist and the existing hoist are given in the following table The existing hoist can currently be sold for $18,100 and will not incur any removal or cleanup costs. At the end of 5 years, the existing hoist can be sold to net $1,000 before taxes. Hoists A and B can be sold to net $12,100 and $19,700 before taxes, respectively at the end of the 5-year period (see MACRS table ). The firm is subject to a 40% tax rate. a. Calculate the initial investment associated with each alternative. Data Table b. Calculate the incremental operating cash flows associated with each alternative. (Note: Be sure to consider the depreciation in year 6. c. Calculate the terminal cash flow at the end of year 5 associated with each alternative. d. Depict on a time line the relevant cash flows associated with each alternative. b. Calculate the incremental operating cash flows associated with each alternative. (Note: Be sure to consider the depreciation in year 6. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Calculate the incremental operating cash flows associated with the existing hoist below: (Round to the nearest dollar.) ation Percentages by Recovery Year Using MACRS for Operating Cash Inflows for Existing Hoist Classes - X Data Table Percentage by recovery year* Year 1 3 years 5 years 7 years 10 years Profits before depreciation and taxes $ 13,4 33% 20% 14% 10% 45% 32% 25% 18% Depreciation $ (Click on the icon located on the top-right corner of the data table below in order to copy its 15% 19% 18% 14% contents into a spreadsheet.) Net profits before taxes $ 7% 12% 12% 12% $ 12% Earnings before Taxes 9% 9% depreciation, interest, and taxes 5% 9% 8% Net profits after taxes $ Year With hoist A With hoist B With existing hoist 9% 7% $ 1 $21,300 $22,300 $13,400 Operating cash inflows 4% 6% 2 21,300 24,500 13,400 6% 3 21,300 26.200 13,400 6% Enter any number in the edit fields and then click Check A 4 21,300 26,200 13,400 4% 5 21,300 26,200 13,400 100% 100% 100% 100% have been rounded to the nearest whole percent to simplify calculations while remaining calculate the actual depreciation for tax purposes, be sure to apply the actual Print Done ges or directly apply double-declining balance (200%) depreciation using the half-year 21 parts
