1. Annadark Corp is considering the purchase of a machine that costs $1,300,000. The machine will...

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1. Annadark Corp is considering the purchase of a machine thatcosts $1,300,000. The machine will be depreciated using a five yearMACRS schedule with half-year convention (Refer to the MACRSSchedule handout). Annadark plans to sell the machine after fouryears and expects the sale price at that time to be $540,000.Corporate tax rate of 21% applies to Annadark. This machine isexpected to add $450,000 in revenue each year. a. What will be thedepreciation on the machine for each of the six years? b. What willbe the book value of the machine at the end of four years? c. Whatwill be the after tax salvage value of the machine, if the tax rateis 21%? BONUS: Annadark also has the option of leasing the machinefor a total after-tax cost of $198,000 per year. Should Annadarklease the machine or purchase the machine if its after-tax cost forlong term borrowing is 3.4%?

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4.1 Ratings (506 Votes)

0 1 2 3 4 5 6 a Depreciation 2000 3200 1920 1152 1152 576 Depreciation expense 260000 416000 249600 149760 149760 74880 b Accumulated depreciation 260000 See Answer

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1. Annadark Corp is considering the purchase of a machine thatcosts $1,300,000. The machine will be depreciated using a five yearMACRS schedule with half-year convention (Refer to the MACRSSchedule handout). Annadark plans to sell the machine after fouryears and expects the sale price at that time to be $540,000.Corporate tax rate of 21% applies to Annadark. This machine isexpected to add $450,000 in revenue each year. a. What will be thedepreciation on the machine for each of the six years? b. What willbe the book value of the machine at the end of four years? c. Whatwill be the after tax salvage value of the machine, if the tax rateis 21%? BONUS: Annadark also has the option of leasing the machinefor a total after-tax cost of $198,000 per year. Should Annadarklease the machine or purchase the machine if its after-tax cost forlong term borrowing is 3.4%?