Question

1) Assume you invest in a machine worth $231002. The machine is classified by the IRS as an asset with a 4 year life, with depreciation percentages for each year, from 1 to 4, as follows: 33%, 45%, 15%, 7%. Which value for depreciation should you use in the 3rd year of your project?

Enter your answer in dollars, rounded to the nearest dollar (no decimals).

2) Assume your company made $343406 in operating income this year. Total depreciation was $25892, and the firm's tax rate is 25%. How much tax do you expect to have to pay?

Enter your answer in dollars, rounded to the nearest dollar (no decimals).

Answer 1

1) The Depreciation that we should use in year 3 of the project:

Depreciation = Machine value* Year 3 Depreciation rate

= $2,31,002*15%

= $34,650

2) Amount of tax to be paid :

NOTE: OPERATING INCOME IS THE INCOME THAT IS ARRIVED AFTER DEDUCTING DEPRECIATION EXPENSE

   Operating income = $3,43,406

Less: Tax @ 25%    =  ($85,852)

( $3,43,406*25%)

= $2,57,554

Amount of tax Paid is = $85,852