Case Study 12 First cost of equipment = $150,000 Market value at the end of year 6 = $30,000 MACRS depreciation is used. The equipment is a 5-year property. Incremental income-tax rate for the company = 35% \[\begin{array} { | l | l | l | l | l | l | l | l | } \hline \text { Year } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\ \hline \text { BT-CF in } \$ & - 150 \mathrm {~K} & 60 \mathrm {~K} & 63 \mathrm {~K} & 66 \mathrm {~K} & 69 \mathrm {~K} & 72 \mathrm {~K} & 75 \mathrm {~K} \\ \hline \begin{array} { l } \text { ORM } \\ \text { Expenses } \end{array} & & 10 \mathrm {~K} & 13 \mathrm {~K} & 16 \mathrm {~K} & 19 \mathrm {~K} & 22 \mathrm {~K} & 25 \mathrm {~K} \\ \hline \end{array}\] -The fourth -year taxable income is equal to ________________.

A) $500 B) $32,750 C) $50,000 D) $51,720 A) $500 B) $32,750 C) $50,000 D) $51,720 B

Case Study 12 First cost of equipment = $150,000 Market value at the end of year 6 = $30,000 MACRS depreciation is used. The equipment is a 5-year property. Incremental income-tax rate for the company = 35% \[\begin{array} { | l | l | l | l | l | l | l | l | } \hline \text { Year } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\ \hline \text { BT-CF in } \$ & - 150 \mathrm {~K} & 60 \mathrm {~K} & 63 \mathrm {~K} & 66 \mathrm {~K} & 69 \mathrm {~K} & 72 \mathrm {~K} & 75 \mathrm {~K} \\ \hline \begin{array} { l } \text { ORM } \\ \text { Expenses } \end{array} & & 10 \mathrm {~K} & 13 \mathrm {~K} & 16 \mathrm {~K} & 19 \mathrm {~K} & 22 \mathrm {~K} & 25 \mathrm {~K} \\ \hline \end{array}\] -The first-year after tax-cash flow is _____________.

A) $33,000 B) $27,000 C) $53,000 D) $40,000 A) $33,000 B) $27,000 C) $53,000 D) $40,000

Case Study 12 First cost of equipment = $150,000 Market value at the end of year 6 = $30,000 MACRS depreciation is used. The equipment is a 5-year property. Incremental income-tax rate for the company = 35% \[\begin{array} { | l | l | l | l | l | l | l | l | } \hline \text { Year } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\ \hline \text { BT-CF in } \$ & - 150 \mathrm {~K} & 60 \mathrm {~K} & 63 \mathrm {~K} & 66 \mathrm {~K} & 69 \mathrm {~K} & 72 \mathrm {~K} & 75 \mathrm {~K} \\ \hline \begin{array} { l } \text { ORM } \\ \text { Expenses } \end{array} & & 10 \mathrm {~K} & 13 \mathrm {~K} & 16 \mathrm {~K} & 19 \mathrm {~K} & 22 \mathrm {~K} & 25 \mathrm {~K} \\ \hline \end{array}\] -The tax on depreciation recapture in year 6 is equal to __________________.

A) $6,000 B) $3,000 C) $10,500 D) $10,000 A) $6,000 B) $3,000 C) $10,500 D) $10,000

Exam 12: Income Taxes for Corporations

A production equipment at a cost of $500,000 has been purchased by a contract manufacturing company to meet the specific needs of customer that had awarded a 4-year contract with the possibility of extending the contract for another 4 years. The company plans to use the MACRS depreciation method for this equipment as a 7-year property for tax purposes. The income tax rate for the company is 39%, and it expects to have an after -tax rate of return of 12% for all its investments. The equipment generated an annual income of $100,000 for the first four years. The customer decided not to renew the contract after 4 years. Consequently, the company decided to sell the equipment for $180,000 at the end of 4 years. Determine if the company obtained the expected after-tax rate of return on this investment.

Free

(Short Answer)

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Question 1

Correct Answer:

Verified

A small business sold an equipment for $100,000 after depreciating the equipment using SOYD depreciation method. The federal tax liability on this depreciation recapture is $34,000 if the company also had other taxable income of $150,000 in that year.

Free

(True/False)

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(65)

Question 2

Correct Answer:

Verified

False

Case Study 12 First cost of equipment = $150,000 Market value at the end of year 6 = $30,000 MACRS depreciation is used. The equipment is a 5-year property. Incremental income-tax rate for the company = 35% Year 0 1 2 3 4 5 6 BT-CF in \ -150 60 63 66 69 72 75 ORM Expenses 10 13 16 19 22 25 -The fourth -year taxable income is equal to ________________.

Free

(Multiple Choice)

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(73)

Question 3

Correct Answer:

Verified

An equipment purchased at a cost $80,000 by a local company is being depreciated using MACRS method as a 5-year property. At the end of four years, the management decided to sell the equipment for a modest price of $20,000. The company is in the 34% tax bracket. Compute the tax consequence on the sale of this equipment.

(Multiple Choice)

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Question 4

A distribution center purchased an equipment for $100,000 and has depreciated the equipment using the MACRS depreciation schedule as a 7-year property. The operating income in year 2 was $200,000 and the expenses were $87,000. If the company is in the 40% income tax bracket, determine the after-tax cash flow in year 2 The tax on depreciation recapture in year 2 is equal to __________________.

(Multiple Choice)

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Question 5

Case Study 12 First cost of equipment = $150,000 Market value at the end of year 6 = $30,000 MACRS depreciation is used. The equipment is a 5-year property. Incremental income-tax rate for the company = 35% Year 0 1 2 3 4 5 6 BT-CF in \ -150 60 63 66 69 72 75 ORM Expenses 10 13 16 19 22 25 -The first-year after tax-cash flow is _____________.

(Multiple Choice)

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Question 6

Case Study 12 First cost of equipment = $150,000 Market value at the end of year 6 = $30,000 MACRS depreciation is used. The equipment is a 5-year property. Incremental income-tax rate for the company = 35% Year 0 1 2 3 4 5 6 BT-CF in \ -150 60 63 66 69 72 75 ORM Expenses 10 13 16 19 22 25 -The tax on depreciation recapture in year 6 is equal to __________________.

(Multiple Choice)

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Question 7

For a company with a taxable income of $10.5M, determine the: A) marginal B) average tax rates

(Short Answer)

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Question 8

Eric Systems located in Georgia expects a 10% after-tax rate of return on equipment investments. The state income tax rate is 6%. If the company is in the 34% federal tax bracket, estimate the before-tax rate of return required.

(Multiple Choice)

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Question 9

A piece of property bought by XYZ Corporation a few years ago was sold for $5 M. The cost basis for this property was $2.75 M. The company had a taxable income of $12.15 million in the year the property was sold. The capital gain tax on this property is $337,500.

(True/False)

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Question 10

A firm operates in a state that has a corporate income tax rate of 5% and is deductible from the federal taxes. If the incremental federal tax is 34%, then the combined effective tax rate is 35.9%

(True/False)

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Question 11

The income tax rates are the same for capital gains and depreciation recapture of an asset.

(True/False)

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Question 12

Johnson's Inc. made $250,000 in 2015 in consulting business in Tennessee. The company had other taxable income of $1,000,000 in year 2015. The federal income tax for the consulting work done in Tennessee is $85,500

(True/False)

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(83)

Question 13

Showing 1 - 13 of 13

A small business sold an equipment for $100,000 after depreciating the equipment using SOYD depreciation method. The federal tax liability on this depreciation recapture is $34,000 if the company also had other taxable income of $150,000 in that year.

For a company with a taxable income of $10.5M, determine the: A) marginal B) average tax rates

Eric Systems located in Georgia expects a 10% after-tax rate of return on equipment investments. The state income tax rate is 6%. If the company is in the 34% federal tax bracket, estimate the before-tax rate of return required.

A piece of property bought by XYZ Corporation a few years ago was sold for $5 M. The cost basis for this property was $2.75 M. The company had a taxable income of $12.15 million in the year the property was sold. The capital gain tax on this property is $337,500.

A firm operates in a state that has a corporate income tax rate of 5% and is deductible from the federal taxes. If the incremental federal tax is 34%, then the combined effective tax rate is 35.9%

The income tax rates are the same for capital gains and depreciation recapture of an asset.

Johnson's Inc. made $250,000 in 2015 in consulting business in Tennessee. The company had other taxable income of $1,000,000 in year 2015. The federal income tax for the consulting work done in Tennessee is $85,500

Making Economic Decisions

Estimating Engineering Costs and Benefits

Interest and Equivalence

Equivalence for Repeated Cash Flows

Present Worth Analysis

Annual Cash Flow Analysis

Rate of Return Analysis

Choosing the Best Alternative

Other Analysis Techniques

Uncertainty in Future Events

Depreciation

Replacement Analysis

Inflation and Price Change

Selection of a Minimum Attractive Rate of Return

Economic Analysis in the Public Sector

Accounting and Engineering Economy

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