ENGR 301 Week 13

Chapter 12

2. Individual John Adams- Taxable income=$50,000-$5,000-$3,050=$41,950 Tax= ($41,950-$28,400)*27%+$3,960=$7,618.50 Mary Eve- Taxable income=$45,000-$4,750-$3,050=$37,200 Tax= (37,200-$28,400)*27%+$3,960=$6,336 Joint Tax=$7618.50+$6336=$13,954.50 Married Taxable income=$50,000+$45,000-$7,950-$6,100=$80,950 Tax= ($80,950-$47,450)*27%+$6,517.50=$15,562.50

3. Adjusted income after taxes= $3,060-$1,620=$1,440

11. State tax= $150,000*9.6%=$14,400 Federal taxable income=$150,000-$14,400=$135,600 Federal tax=$22,250+39 %( $135,600-$100,000) =$36,134 Total tax= $14,400+ $36,134=$50.534 Incremental tax rate= 9.6 %+( 39%) (1-9.6%) =44.85%

16.
Year
Before-Tax Cash Flow
SOYD Deprec.
Taxable Income
Income Taxes at 20%
After-Tax Cash Flow
0
-$50,000

-$50,000
1
+$20,000
$15,000
$5,000
-$1,000
+$19,000
2
+$17,000
$12,000
$5,000
-$1,000
+$16,000
3
+$14,000
$9,000
$5,000
-$1,000
+$13,000
4
+$11,000
$6,000
$5,000
-$1,000
+$10,000
5
+$8,000
+$5,000 (salvage val.)
$3,000
$5,000
$0
-$1,000
$0
+$7,000
+$5,000
Sum

$45,000

PW of Benefits – PW of Cost = 0
$19,000 (P/A, i%, 5) - $3,000 (P/G, i%, 5)
+ $5,000 (P/F, i%, 5) - $50,000 = 0
Try i = 15% $19,000 (3.352) - $3,000 (5.775) + $5,000 (0.4972) - $50,000 = -$1,151
Try i = 12% $19,000 (3.605) - $3,000 (6.397) + $5,000 (0.5674) - $50,000 = +$2,141 i = 14%.

18.
Year
Before-Tax Cash Flow
DDB Deprec.
Taxable Income
Income Taxes at 34%
After-Tax Cash Flow
NPW at 10%
0
-$1,000

-$1,000
-$1,000
1
+$500
$400
$100
-$34
+$466
$423.6
2
+$340
$240
$100
-$34
+$306
$252.9
3
+$244
$144
$100
-$34
+$210
$157.8
4
+$100
$86.4
$13.6
-$4.6
+$95.4
$65.2
5
+$100
+$125
$4.6*
$95.4
-$32.4
+$192.6
$119.6
Sum

$875

+$19.1

At 10%, NPW = +$19.1
Thus the rate of return exceeds 10%. The project should be undertaken.

21.
Double Declining Balance Depreciation

Year
Bn-1
Dn
Bn

1
$100,000.00
$50,000.00
$50,000.00

2
$50,000.00
$25,000.00
$25,000.00

3
$25,000.00
$12,500.00
$12,500.00

4
$12,500.00
$6,250.00
$6,250.00

Year
0
1
2
3
4
5
6
OR

$30,000.00
$30,000.00
$35,000.00
$40,000.00
$10,000.00
$10,000.00
Dep.

$50,000.00
$25,000.00
$12,500.00
$6,250.00
$0.00
$0.00
BTCF

-$20,000.00
$5,000.00
$22,500.00
$33,750.00
$10,000.00
$10,000.00
Taxes -$9,200.00
$2,300.00
$10,350.00
$15,525.00
$4,600.00
$4,600.00
Net Profit

-$10,800.00
$2,700.00
$12,150.00
$18,225.00
$5,400.00
$5,400.00
Dep.

$50,000.00
$25,000.00
$12,500.00
$6,250.00
$0.00
$0.00
Investment
-$100,000

Salvage

$6,250.00
Net ATCF
-$100,000
$39,200.00
$27,700.00
$24,650.00
$24,475.00
$5,400.00
$11,650.00

After tax rate of return=11.61%

33. Fix
Year
Bn-1
MACRS
Bn

1
$14,000.00
$2,800
$11,200.00

2
$11,200.00
$3,584
$7,616.00

3
$7,616.00
$1,462.27
$6,153.73

4
$6,153.73
$708.91
$5,444.82

Calculation of net Salvage
UCC at year 4=
$5,444.82

Proceed S=
$3,000.00

Gain on disp.=
-$2,444.82

Tax effect G=
-$1,100.17

Net S=
$4,100.17