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FIN 301 Exam #3 Questions And Accurate Answers
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FIN 301 Exam #3 Questions And Accurate AnswersAn asset used in a 4-year project is classified under the 5-year MACRS class (MACRS
Table) for tax purposes. The asset costs $17,460,000 to acquire and will be sold at the
end of the project for $3,880,000.
Assuming that the tax rate is 23 percent, what is the aftertax salvage value of the asset?
-Answer 17,460,000 - 17,460,000 (0.20+ 0.32+ 0.1920 + 0.1152) (these numbers are from
fiveyear)
3,017,088
3,017,088 - 3,880,000= -862912
-862912 X 0.23
-198469.76
3,880,000 - 198,469.76
$ 3,681,530
Quad Enterprises
Quad Enterprises is considering a new three-year expansion project. The project
requires an initial investment of $3.996 million in fixed assets. The fixed assets will be
straight-lined to zero at the end of its 3 year tax life when it will be worthless. The project
is expected to generate annual sales of $3,552,000 and annual costs of $1,420,800.
If the tax rate is 23 percent, what is the OCF for this project? - Answer Sales= 3,552,000
Cost= 1,420,800
Depreciation 3,996,000/3= 1,332,000
Profit (1-2-3)= 799,200
Taxes= 799,200 X 0.23= 183,816
Profit-Taxes= 615,384
Cash flow= 615,384+ 1,332,000= $1,947,384
, The asset used in a 4-year project belongs to the 5-year MACRS class for tax purposes.
The asset has an acquisition cost of $18,000,000 and will be sold at the end of the
project for $4,000,000.
If the tax rate is 22 percent, what is the aftertax salvage value of the asset?
- Solution
18,000,000(0.2+0.32+0.192+0.1152)= 14,889,600
18,000,000- 14,889,600= 3,110,400
3,110,400- 4,000,000= -889.600
-889.600 X 0.22= 195,712
4,000,000- 195,712= $3,804,288
McCanless Co. has just acquired an asset which cost $2,500,000. The asset is to be
used equally in a 3-year project. The asset is in the 4-year MACRS class. The annual
depreciation percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectfully. What is
the amount of depreciation in Year 2? -Answer 2,500,000 X 0.4445
$1,111,250
A company purchased an asset for $3,700,000 that would be used in a 3-year project.
The asset is in the 3-year MACRS class. The percentage of depreciation every year is
33.33 percent, 44.45 percent, and 14.81 percent, respectively. What is the book value of
the equipment at the end of the project? - Answer 3,700,000(1-0.3333 0.4445 0.1481)
= $274,170
Brummitt Corp., is considering a new 4-year project. The equipment needed for the
project costs $2,600,000 and will be sold for $305,000 at the end of the project. The
asset is in the 5-year MACRS class. The annual depreciation percentage is 20.00
percent, 32.00 percent, 19.20 percent, 11.52 percent and 11.52 percent, respectively.
The company's tax rate is 34 percent. What is the aftertax salvage value of the
equipment? - Answer 2,600,000(1-0.2-0.32-0.192-0.1152)
449280-305000= 144,280
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