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Voxland Industries purchased a computer for $10,000. Voxland uses the five-year Modified Accelerated Cost Recovery System (MACRS) with no salvage value to depreciate the computer.

Voxland Industries purchased a computer for $10,000. Voxland uses the five-year Modified Accelerated Cost Recovery System (MACRS) with no salvage value to depreciate the computer. Continue to assume the machine is sold after five years for $1,000. The company's marginal tax rate is 36%. Calculate the cash flows associated with the computer from its purchase to its eventual sale including the years in between. Round the answers to the nearest dollar. Use a minus sign to indicate negative cash flows or decreases in cash, if required. (Hint: Apply the MACRS rules for computers in the table below to the entire cost of the computer. Notice, however, that there will be a positive net book value after five years because MACRS takes five years of depreciation over six years due to the half-year convention.)

Class Representative Equipment
3-year Special Tooling
5-year Automobiles and computers
7-year Furniture and equipment
Depreciation as a Percent of Cost Property Class
Years in Life 3-year 5-year 7-year
1 33.3% 20.0% 14.3%
2 44.4 32.0 24.5
3 14.8 19.2 17.5
4 7.5 11.5 12.5
5 11.5 8.9
6 5.8 8.9
7 8.9
8 4.5
Year Cash Flow
0 $
1 $
2 $
3 $
4 $
5

$

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