Problem 11-8

Voxland Industries purchased a computer for $10,000. Voxland uses the five-year Modified Accelerated Cost Recovery System (MACRS) with no salvage value to depreciate the computer. Continue to assume the machine is sold after five years for $1,000. The company's marginal tax rate is 33%. Calculate the cash flows associated with the computer from its purchase to its eventual sale including the years in between. Round the answers to the nearest dollar. Use a minus sign to indicate negative cash flows or decreases in cash, if required. (Hint: Apply the MACRS rules for computers in the table below to the entire cost of the computer. Notice, however, that there will be a positive net book value after five years because MACRS takes five years of depreciation over six years due to the half-year convention.)

Class	Representative Equipment
3-year	Special Tooling
5-year	Automobiles and computers
7-year	Furniture and equipment

	Depreciation as a Percent of Cost Property Class
Years in Life	3-year	5-year	7-year
1	33.3%	20.0%	14.3%
2	44.4	32.0	24.5
3	14.8	19.2	17.5
4	7.5	11.5	12.5
5		11.5	8.9
6		5.8	8.9
7			8.9
8			4.5

Year	Cash Flow
0	$
1	$
2	$
3	$
4	$
5	$