Manning Corporation is considering a new project requiring a $96,500 investment in test equipment with no salvage value. The project would produce $73,500 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 32%. 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. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Manning Corporation is considering a new project requiring a $96,500 investment in test equipment with no salvage value. The project would produce $73,500 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 32%. 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. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

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Manning Corporation is considering a new project requiring a $96,500 investment in test equipment with no salvage value. The project would produce $73,500 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 32%. 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. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Straight-Line

Depreciation MACRS

Depreciation
Year 1 $ 9,650 $ 19,300
Year 2 19,300 30,880
Year 3 19,300 18,528
Year 4 19,300 11,117
Year 5 19,300 11,117
Year 6 9,650 5,558

Totals $ 96,500 $ 96,500
Prepare a five-column table that reports amounts (assuming use of straight-line depreciation) for each of the following for each of the six years: (a) pretax income before depreciation, (b) straight-line depreciation expense, (c) taxable income, (d) income taxes, and (e) net cash flow. Net cash flow equals the amount of income before depreciation minus the income taxes.

Prepare a five-column table that reports amounts (assuming use of MACRS depreciation) for each of the following for each of the six years: (a) pretax income before depreciation, (b) MACRS depreciation expense, (c) taxable income, (d) income taxes, and (e) net cash flow. Net cash flow equals the income amount before depreciation minus the income taxes.
Compute the net present value of the investment if straight-line depreciation is used. Use 6% as the discount rate.

Compute the net present value of the investment if MACRS depreciation is used. Use 6% as the discount rate.

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