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Telstar Communications is going to purchase an asset for $460,000 that will produce $220,000 per year for the next four years in earnings before depreciation
Telstar Communications is going to purchase an asset for $460,000 that will produce $220,000 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.
(This answer is correct with the exception of year 1 and year 2 taxes which I couldn't figure out) Fill in the schedule below for the next four years.
| Year 1 | Year 2 | Year 3 | Year 4 | |
| Earnings before depreciation and taxes | $220,000 | $220,000 | $220,000 | $220,000 |
| Depreciation | 153,333 | 204,496 | 68,126 | 34,045 |
| Earnings before taxes | $66,667 | $15,504 | $151,874 | $185,955 |
| Taxes | 53,156 | 65,084 | ||
| Earnings after taxes | $66,667 | $15,504 | $98,718 | $120,871 |
| Depreciation | 153,318 | 204,496 | 68,126 | 34,045 |
| Cash flow | $219,985 | $220,000 | $166,844 | $154,916 |
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