Question 2

The machine is bought at $200,000 with shipping cost of $10,000 and installation cost of $30,000. The machine has economic life of 4 years.

The tax rate is 25%. What would be tax expense (or tax credit) if the machine is sold at year 3 at $10,000?

Year MACRS

1 33%

2 45%

3 15%

4 7%

1) $10,000

2) $2,050

3) $5,000

4) $1,700

Question 12

A firm has $600,000 interest-bearing debt with annual interest rate of 7%. In addition, a firm uses debt and equity to finance. The annual sale is $2.7 million and tax rate of 25%. The profit margin is 7%.

Given ROA of 10.5% and ROE of 21%, what is liabilities to asset ratio and what is ROIC, respectively?

1) 50; 16.97%

2) 50%; 18.38%

3) 40%; 21.05%

4) 40%; 10.54%