Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $512,000. Of this sum, $64,000

image text in transcribed

Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $512,000. Of this sum, $64,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $64,000 straight-line over 5 years. The tax rate is 30% and the opportunity cost of capital is 5%. a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense? b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment? (Round your answer to the nearest whole dollar amount.) a. Present value b. Present value

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance

Authors: Jack R Kapoor, Glencoe McGraw Hill, Les R Dlabay, Robert J Hughes

1st Edition

0078698006, 9780078698002

More Books

Students also viewed these Finance questions

Question

How should a consultant be selected?

Answered: 1 week ago

Question

Why is a consulting contract needed?

Answered: 1 week ago