Loading... Please wait...

- Home
- Solution Library
- Accounting
- 100. A 5-year depreciation period usually means that:a.

100. A 5-year depreciation period usually means that:

a. the company expects to use the asset for 5 years

b. the company will depreciate the asset over 5 years for tax purposes

c. the original cost of the asset will be recouped in 5 years

d. All of these answers are correct.

102. Caribbean Corporation is considering the purchase of equipment for $360,000. The asset will have a 10-year life, no terminal salvage value, and straight-line depreciation will be used for tax purposes. It is expected that annual sales of the product manufactured by the equipment will be $180,000, and that there will be annual production costs, exclusive of depreciation, equal to $120,000. The tax rate applicable to the company is 30%. The annual net after-tax cash effect of operations, exclusive of depreciation, is a(n):

a. $18,000 inflow

b. $18,000 outflow

c. $42,000 outflow

d. $42,000 inflow

103. Robin Company is considering the purchase of a new $80,000 delivery van. The van will have a useful life of 5 years, no terminal salvage value, and tax depreciation will be calculated using the straight-line method. If the van is purchased, the company will be able to increase annual revenues by $90,000 per year for the life of the van, but out-of-pocket expenses will also increase by $60,000 per year. Assume a tax rate of 40% and a required after-tax rate of return equal to 10%. The annual net after-tax cash effect of operations, exclusive of depreciation, is a(n):

a. $18,000 inflow

b. $30,000 inflow

c. $12,000 inflow

d. $2,000 inflow

104. Accelerated depreciation for tax purposes will generally produce a present value of tax savings that is:

a. the same as that provided by straight-line depreciation

b. greater than that provided by straight-line depreciation

c. less than that provided by straight-line depreciation

d. greater than that provided by any other depreciation method

105. A company is considering the purchase of some equipment that in the second year of operation should cause an increase in sales of $150,000, an increase in cash expenses of $90,000, and a depreciation deduction of $45,000. If the appropriate tax rate is 40%, the after-tax effect of this equipment on cash flows in year two is:

a. no effect

b. net after-tax cash inflows of $54,000

c. net after-tax cash inflows of $9,000

d. net after-tax cash inflows of $15,000

106. If the appropriate tax rate is 30%, the after-tax effect of a single depreciation deduction of $100,000 is a:

a. $70,000 net after-tax cash outflow

b. $70,000 net after-tax cash inflow

c. $30,000 net after-tax cash outflow

d. $30,000 net after-tax cash inflow

107. If the appropriate tax rate is 30%, the after-tax effect of an $100,000 savings in labor cost is

a. $30,000 net after-tax cash outflow

b. $30,000 net after-tax cash inflow

c. $70,000 net after-tax cash outflow

d. $70,000 net after-tax cash inflow

108. Bond Corporation is considering the purchase of an asset for $400,000. It is expected that the product manufactured by the equipment can be sold for $150,000 and there will be annual production costs, exclusive of depreciation, equal to $80,000. The asset will have a 10-year life, no terminal salvage value, and straight-line depreciation will be used for tax purposes. The tax rate applicable to the company is 30%. The total net annual after-tax effect on cash resulting from the investment is a:

a. $49,000 inflow

b. $61,000 inflow

c. $12,000 inflow

d. $21,000 inflow

109. Matt Helm Corporation is considering the purchase of an asset for $400,000. It is expected that the product manufactured by the equipment can be sold for $150,000 and that there will be annual production costs, exclusive of depreciation, equal to $80,000. The asset will have a 10-year life, no terminal salvage value, and straight-line depreciation will be used for tax purposes. The tax rate applicable to Matt Helm Corporation is 30%. If the equipment is purchased, the total net after-tax effect on cash flows over the entire life of the investment is:

a. $610,000 inflow

b. $210,000 outflow

c. $210,000 inflow

d. $90,000 inflow

110. Sally Sweet Tooth Company will purchase a van for $50,000. The vans depreciable life is 5 years with no terminal salvage value. Assume a tax rate of 40% and a required after-tax rate of return of 12%. The annual after-tax effect of depreciation, if the straight-line method is used for taxes, is a:

a. $6,000 outflow

b. $6,000 inflow

c. $4,000 outflow

d. $4,000 inflow

111. Sam Butcher Company will purchase a van for $40,000. It will have a depreciable life of 5 years and no terminal salvage value. Assume a tax rate of 40% and a required after-tax rate of return of 12%. The present value of the total after-tax savings from depreciation, if the straight-line method is used, is:

a. $11,535

b. $16,000

c. $24,000

d. $17,303

112. Alice Maid Company will purchase a van for $40,000. It will have a depreciable life of 5 years and no terminal salvage value. Assume a tax rate of 40% and a required after-tax rate of return of 12%. The present value of the after-tax saving from depreciation in year 2, if an accelerated method is used (of twice the straight-line rate), is:

a. $2,551

b. $3,827

c. $6,378

d. None of these answers is correct.

LEARNING OBJECTIVE 6

113. A five year MACRS asset which cost $50,000 with zero terminal value was sold at the end of its useful life for $20,000. The tax rate is 40%.

a. $58,000

b. $62,000

c. $8,000

d. $12,000

114. An asset with a book value of $40,000 is sold at a loss (before taxes are considered) of $20,000. The applicable tax rate is 40%. The net after-tax cash effect of this transaction is a:

a. $20,000 cash inflow

b. $12,000 cash outflow

c. $48,000 cash inflow

d. $28,000 cash inflow

115. An asset with a book value of $50,000 is sold at a loss (before taxes are considered) of $20,000. The applicable tax rate is 40%.

a. $8,000 cash inflow

b. $8,000 cash outflow

c. $16,000 cash inflow

d. $28,000 cash inflow

Expert's Answer

Download Solution:

This solution includes:

- Plain text
- Cited sources when necessary
- Attached file(s)
- Solution Document(s)

- Company
- About Us
- Blog
- Press
- Careers
- Contact Us

Subjects

Accounting | Anatomy | Anthropology | Art and Architecture | Astronomy | Auditing | Biochemistry | Biology | Business Law | Business Management | Business Studies | Chemistry | Economics | English | Earth Science | Computer Science | Essay Writing | Finance | Gender Studies | Hospitality Management | HR Management | Humanities | Law | Management | Marketing | Math | Mathematics | Mechanical Engineering | Medical Science | Nursing | Operations Management | Other Engineering | Other Subjects | Philosophy | Physics | Physiology | Political science | Psychology | Sociology | Statistics | Taxation | Web Development | Writing Assignments