Problem 12-25 MACRS depreciation and cash flow [LO2]

Telstar Communications is going to purchase an asset for $380,000 that will produce $180,000 per year for the next four years in earnings before depreciation and taxes. The asset will be depreciated using the three-year MACRS depreciation schedule in Table 1212. (This represents four years of depreciation based on the half-year convention.) The firm is in a 35 percent tax bracket.

Fill in the schedule below for the next four years. (Input all amounts as positive values. Round your answers to the nearest whole dollar amount.)

Input variables:
Asset cost	$380,000
Annual EBDT	$180,000
Tax rate	0.35	percent
Depreciation factor Year1	.333
Depreciation factor Year 2	.445
Depreciation factor Year 3	.148
Depreciation factor Year 4	.074
Solution and Explanation:
	Year 1	Year 2	Year 3	Year 4
EBDT
Depreciation
EBT
Taxes
EAT
Depreciation
Cash flow