Manning Corporation is considering a new project requiring a $100,000 investment in test equipment with no salvage value. The project would produce $69,500 of pretax income before depreciation at the end of each of the next six years. The companys income tax rate is 38%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.)

Straight-Line Depreciation

MACRS Depreciation

Year 1

$

10,000

$

20,000

Year 2

20,000

32,000

Year 3

20,000

19,200

Year 4

20,000

11,520

Year 5

20,000

11,520

Year 6

10,000

5,760

Totals

$

100,000

$

100,000

Complete the following table assuming use of straight-line depreciation. Net cash flow equals the amount of income before depreciation minus the income taxes.

	Income Before Depreciation	Straight-Line Depreciation	Taxable Income	Income Taxes	Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6

Complete the following table assuming use of MACRS depreciation. Net cash flow equals the amount of income before depreciation minus the income taxes.

	Income Before Depreciation	MACRS Depreciation	Taxable Income	Income Taxes	Net Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6

Compute the net present value of the investment if straight-line depreciation is used. Use 6% as the discount rate.

Chart Values are Based on:
i =
Year	Net Cash Inflow	x	PV Factor	=	Present Value
1				=
2				=
3				=
4				=
5				=
6				=
Net present value

Compute the net present value of the investment if MACRS depreciation is used. Use 6% as the discount rate.

Chart Values are Based on:
i =
Year	Net Cash Inflow	x	PV Factor	=	Present Value
1				=
2				=
3				=
4				=
5				=
6				=
Net present value