Q1

Answer:

I prefer to choose depreciating a cost over several year method instead of expensing it in a single year.

Generally, single year depreciation method is used in case of asset whose value reduce very fast and is
more productive in year of installation to get tax benefit in installed period whereas depreciating a cost
over several years firm will get tax benefit over the life of asset

If in an early year in which asset installed, if a firm will expect losses than firm will not able to take
benefit of higher depreciation. So, incase wanting extra deduction in single year, will consider to have
allocating depreciation expenses over number of years.

Q2:

Offshoring is basically like outsourcing; you’re paying other entity to do the functions of your business
but the only difference is the entity is abroad hence offshore.

An example of this would be you want your product to be made in china because of cheap labor and
material. This mean you have offshore company.

CONS of Offshores company

The first one is ethical concern; due to some low wages and poor economic condition of factories the
ethical concerns may be raised for the process of offshoring.

The second one is culture barriers and communication. Because of the change in time zones it will be
difficult to maintain communication with the offshoring site. The decision which can be taken in one day
now need several weeks due to cultural and communication difference.

The last one is Security, the security issue can be fatal, you have maintained high security for expensive
asset and also the expense of security increase.

PROS of Offshores company

The first one is cost effectiveness; It is one of the major benefits of offshoring company, the material
cost, labor cost and overhead cost all will be reduced to minimize product cost and maximize company
profit.

The second one is new market expansion, due to operating in different region, there is huge opportunity
of capturing new market and expand the business.

The last one is Human resource issue like motivation and job satisfaction, By offshoring the task the
employee will be more satisfied on job and there is increase in overall productivity of the company. The
happier are more productive and freer them up to think more productive company strategies
 Q3

Given That:

A service company purchases a fleet of truck for house call at a cost value of $1 Million

Working:

Depreciation Expense:

First year = 1,000,000 * 20% = 200,000

Second year = 1,000,000 *32% = 320,000

Third Year = 1,000,000 * 19.2% = 192,000

Total Depreciation = $712,000

Adjusted Cost Basis of Truck = $1,000,000 - $712,000 = $288,000

Sale of Truck = $612,000

Gain on sale of Truck =$ 612,000 –$ 288,000 = $324,000

Depreciation Recapture = $324,000

Computation of After-Tax Cash flow

Gross Income = $1,500,000

ADD: Depreciation Recapture = $324,000

Total = $1,824,000

LESS: Gross expense = ($1,100,000)

LESS: Depreciation = ($712,000)

Net Income = $12000

Tax @21% = 12000*21% = 2520

Income After Tax = $9480

After Tax Cash flow = Income After Tax + Depreciation

9480 + 712000= $721,480

Q4

years Deprecatio Labor Total Tax saving (iii) = {(i) + PVF PV of Total Cost after Tax (V)
 @15%
n (i) Cost (ii) (ii)}(0.34) (IV) = (III) *(IV)
$ $ $ $
1 12,500 30,000 14,450 0.87 12,572
$ $ $ $
2 12,500 30,000 14,450 0.756 10,924
$ $ $ $
3 12,500 30,000 14,450 0.658 9,508
$ $ $ $
4 12,500 30,000 14,450 0.572 8,265
$ $ $ $
5 12,500 30,000 14,450 0.497 7,182
$ $ $ $
6 12,500 30,000 14,450 0.432 6,242
$ $ $ $
7 12,500 30,000 14,450 0.376 5,433
$ $ $ $
8 12,500 30,000 14,450 0.327 4,725
$ $ $ $
9 12,500 30,000 14,450 0.284 4,104
$ $ $ $
10 12,500 30,000 14,450 0.247 3,569
$
        Total 72,525

Net Present Worth = PV of Tax saving – Project Cost = $72,524 - $125,000 = ($52,476)

NPW = ($52,476)