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[The following information applies to the questions displayed below.] Manning Corporation is considering a new project requiring a $90,000 investment in test equipment with no salvage value. The project would produce $74,500 of pretax income before depreciation at the end of each of the next six years. The companys income tax rate is 40%. 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.)

* The modified accelerated cost recovery system (MACRS) for depreciation is discussed in Chapter 8.

3. Compute the net present value of the investment if straight-line depreciation is used. Use 8% as the discount rate.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Totals Straight-Line Depreciation $ 9,808 18,000 18,888 18, eee 18,888 9,888 $99,808 MACRS Depreciation $18,000 28, see 17,280 12,368 12,368 5,184 $98,888 Chart Values are Based on: Present Value Year Net Cash Inflow X PV Factor = 1 = 2 3 4 5 6 6 Net present value