Required information
Problem 24-3A Computation of cash flows and net present values with alternative depreciation methods
LO P3
[The following information applies to the questions displayed below.]
Manning Corporation is considering a new project requiring a $100,000 investment in test equipment with no salvage
value. The project would produce $68,500 of pretax income before depreciation at the end of each of the next six years.
The company's income tax rate is 30%. In compiling its tax return and computing its income tax payments, the company
can choose between the two alternative depreciation schedules shown in the table. (PV of $1, FV of $1, PVA of $1, and
FVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.)
Straight-Line
Depreciation
MACRS
Depreciation*
Year 1
$ 10,000
$ 20,000
Year 2
20,000
32,000
Year 3
20,000
19,200
Year 4
20,000
11,520
Year 5
20,000
11,520
Year 6
10,000
5,760
Totals
$100,000
$100,000
* The modified accelerated cost recovery system (MACRS) for depreciation is discussed in Chapter 8.
Problem 24-3A Part 4
4. Compute the net present value of the investment if MACRS depreciation is used. Use 6% as the discount rate.
Chart Values are Based on:
j =
Year Net Cash Inflow x PV Factor = Present Value
1
2
3
4
5
6
Net present value
