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 $720,000. Of this sum, $90,000

Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $720,000. Of this sum, $90,000 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 $90,000 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.)

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

Essentials Of Health Care Finance

Authors: William O. Cleverley

3rd Edition

0834203413, 978-0834203419

More Books

Students also viewed these Finance questions

Question

What are the primary marketing implications of Table 6-1?

Answered: 1 week ago

Question

Graph the following functions. -2x 1 if x 1

Answered: 1 week ago