Required information

Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods LO P3

[The following information applies to the questions displayed below.] Manning Corporation is considering a new project requiring a $120,000 investment in test equipment with no salvage value. The project would produce $74,000 of pretax income before depreciation at the end of each of the next six years. The companys income tax rate is 36%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.)

	Straight-Line Depreciation					MACRS Depreciation
Year 1		$	12,000				$	24,000
Year 2			24,000					38,400
Year 3			24,000					23,040
Year 4			24,000					13,824
Year 5			24,000					13,824
Year 6			12,000					6,912
Totals		$	120,000				$	120,000

Problem 25-3A Part 2

2. Complete the following table assuming use of MACRS depreciation. Net cash flow equals the income amount before depreciation minus the income taxes.

Problem 25-3A Part 3

3. Compute the net present value of the investment if straight-line depreciation is used. Use 10% as the discount rate.

Problem 25-3A Part 4

4. Compute the net present value of the investment if MACRS depreciation is used. Use 10% as the discount rate.

Income Before Taxable Depreciation Depreciation Income Income Net Cash MACRS Flows Taxes Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Chart Values are Based on: Year Net Cash Inflow x PV Factor Present Value 2 3 4 6 Net present value Chart Values are Based on: Year | Net Cash Inflow x PV Factor = Present Value Net present value