Problem $9-07$

A firm has earnings of $$15,000$ before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $$7,000.$ The equipment will be depreciated over five years, and the firm pays $15$ percent of its earnings in taxes. What are the earnings and cash flows for the firm in years $2$ and $5,$ using the two methods of depreciation? Use Exhibit $9\mathrm{.}4$ to answer the questions. Round your answers to the nearest dollar.

Straight$-$line:

Solve for Year $2$ & Year $5$

Earnings before depreciation and taxes$-$

Depreciation expense$-$

Earnings after depreciation$-$

Taxes $(15\%$ tax rate$)-$

Net earnings$-$

Cash flow$-$

Modified Accelerated Cost Recovery:

Solve for Year $2$ & Year $5$

Earnings before depreciation and taxes$-$

Depreciation expense$-$

Earnings after depreciation$-$

Taxes $(15\%$ tax rate$)-$

Net earnings$-$

Cash flow$-$