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  • MACRS Method Practice Question

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    ‍김재경[ 학부재학 / 경영학과 ]
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    This document contains tables showing depreciation schedules for assets over various recovery periods according to IRS guidelines. It also contains financial statements for a company over 8 years including income statements, balance sheets, cash flow statements, and calculations of book value, market value, and taxes related to asset sales. In year 6, the book value of equipment is $7,096,700 while the market value is $26.5 million, with an after-tax salvage value of $22,425,307 from selling the equipment.

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    MACRS method practice question

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    This document contains tables showing depreciation schedules for assets over various recovery periods according to IRS guidelines. It also contains financial statements for a company over 8 years including income statements, balance sheets, cash flow statements, and calculations of book value, market value, and taxes related to asset sales. In year 6, the book value of equipment is $7,096,700 while the market value is $26.5 million, with an after-tax salvage value of $22,425,307 from selling the equipment.

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    © All Rights Reserved
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    25 views10 pages

    MACRS Method Practice Question

    Uploaded by

    ‍김재경[ 학부재학 / 경영학과 ]
    This document contains tables showing depreciation schedules for assets over various recovery periods according to IRS guidelines. It also contains financial statements for a company over 8 years including income statements, balance sheets, cash flow statements, and calculations of book value, market value, and taxes related to asset sales. In year 6, the book value of equipment is $7,096,700 while the market value is $26.5 million, with an after-tax salvage value of $22,425,307 from selling the equipment.

    Copyright:

    © All Rights Reserved
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    of 10

    RECOVERY PERIOD CLASS

    10 15 20
    YEAR 3 YEARS 5 YEARS 7 YEARS
    YEARS YEARS YEARS
    1 0.3333 0.2 0.1429 0.1 0.05 0.03750
    2 0.4445 0.32 0.2449 0.18 0.095 0.07219
    3 0.1481 0.192 0.1749 0.144 0.0855 0.06677
    4 0.0741 0.1152 0.1249 0.1152 0.077 0.06177
    5 0.1152 0.0893 0.0922 0.0693 0.05713
    6 0.0576 0.0892 0.0737 0.0623 0.05285
    7 0.0893 0.0655 0.059 0.04888
    8 0.0446 0.0655 0.059 0.04522
    9 0.0656 0.0591 0.04462
    10 0.0655 0.059 0.04461
    11 0.0328 0.0591 0.04462
    12 0.059 0.04461
    13 0.0591 0.04462
    14 0.059 0.04461
    15 0.0591 0.04462
    16 0.0295 0.04461
    17 0.04462
    18 0.04461
    19 0.04462
    20 0.04461
    21 0.02231

    Depreciation is expressed as a percent of the asset’s cost. These


    schedules are based on the IRS Publication 946: How to Depreciate
    Property.  Note that five-year depreciation actually carries over six
    years because the IRS assumes purchase is made in midyear.
    Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
    Units 700000 800000 820000 700000 750000 700000
    Contract 32500000 32500000 32500000 32500000 32500000 32500000
    Spot 9000000 13500000 14400000 9000000 11250000 9000000
    Total 41500000 46000000 46900000 41500000 43750000 41500000
    Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
    Sales 41500000 46000000 46900000 41500000 43750000 41500000
    Variable Costs 15400000 17600000 18040000 15400000 16500000 15400000
    Fixed Costs 4000000 4000000 4000000 4000000 4000000 4000000 4200000
    Depreciation 7573700 12979700 9269700 6619700 4732900 4727600
    EBT 14526300 11420300 15590300 15480300 18517100 17372400 -4200000
    Tax 3050523 2398263 3273963 3250863 3888591 3648204 -882000
    Net Income 11475777 9022037 12316337 12229437 14628509 13724196 -3318000
    OCF 19049477 22001737 21586037 18849137 19361409 18451796 -3318000
    Year 8

    7500000

    -7500000
    -1575000
    -5925000
    -5925000
    At Year 6, the following is true
    Book Value of Equipment: 7096700
    Market Value of Equipmet: 26500000
    Tax on Sale of Equipment: -4074693
    Aftertax salvage value 22425307

    Year 0 Year 1 Year 2 Year 3 Year 4 Year 5


    Equipment 53000000
    Depreciation 7573700 12979700 9269700 6619700 4732900
    Accumulated Depreciation 7573700 20553400 29823100 36442800 41175700
    Book Value 45426300 32446600 23176900 16557200 11824300
    Year 6

    4727600
    45903300
    7096700
    Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
    OCF 19049477 22001737 21586037 18849137 19361409
    Capital Spending -60500000
    Net Working Capital(NWC) 2490000 2760000 2814000 2490000 2625000 2490000
    Changes in NWC -2490000 -270000 -54000 324000 -135000 135000
    Total Cash Flows -62990000 18779477 21947737 21910037 18714137 19496409
    Year 6
    18451796
    22425307

    2490000
    43367103
    Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
    Operating cash flow 19049477 22001737 21586037 18849137 19361409 18451796
    Change in NWC -2490000 -270000 -54000 324000 -135000 135000 2490000
    Capital Spending -60500000 22425307
    Total Cash Flow -62990000 18779477 21947737 21910037 18714137 19496409 43367103
    Year 7 Year 8
    -3318000 -5925000

    -3318000 -5925000

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