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macrs
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KLS, Inc. is considering a four-year project that requires the purchase of $2,435,700 worth of equipment. The
equipment is classified under MACRS as being in the seven-year property class. The company will incur $112,500 in annual interest and taxes at the 34% marginal rate for this project. Sales are estimated at $1.5 million a year with costs averaging $939,500 annually over the life of the project. What are the annual CFs?
Year MACRS Allowance
1 14.29%
2 24.49%
3 17.49%
4 12.49%
5 8.93%
6 8.93%
7 4.45%
equipment is classified under MACRS as being in the seven-year property class. The company will incur $112,500 in annual interest and taxes at the 34% marginal rate for this project. Sales are estimated at $1.5 million a year with costs averaging $939,500 annually over the life of the project. What are the annual CFs?
Year MACRS Allowance
1 14.29%
2 24.49%
3 17.49%
4 12.49%
5 8.93%
6 8.93%
7 4.45%
Answers
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Got it- Cash Flows.
It seems common sense to me. Draw up a table with columns for year 1, year 2, year 3.... year 7 along the top. Down the side have rows for outlay/depreciation, interest, tax, sales and costs.
Sales- $1.5 million each year
Costs- $939,500 each year
Interest- $112,500 pa
depreciation- year 1 it's 14.29% of $2,435,700 ; then work out year 2 etc (not sure if it's based on full $2435700 each year or on that figure minus previous year's depreciation-look at your notes!)
Surplus before tax each year=sales-(depreciation +costs + interest)
Net cash flow each year=surplus less 34%
Just a common sense calculation from someone who can add up but hasn't studied this.
It seems common sense to me. Draw up a table with columns for year 1, year 2, year 3.... year 7 along the top. Down the side have rows for outlay/depreciation, interest, tax, sales and costs.
Sales- $1.5 million each year
Costs- $939,500 each year
Interest- $112,500 pa
depreciation- year 1 it's 14.29% of $2,435,700 ; then work out year 2 etc (not sure if it's based on full $2435700 each year or on that figure minus previous year's depreciation-look at your notes!)
Surplus before tax each year=sales-(depreciation +costs + interest)
Net cash flow each year=surplus less 34%
Just a common sense calculation from someone who can add up but hasn't studied this.
1 to 8 of 8
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