Madison Woodworking Company bought a lathe for $75,000. It is being depreciated using MACRS with a...
Madison Woodworking Company bought a lathe for $75,000. It is being depreciated using MACRS with a three-year recovery period. Assuming that the lathe will lead to increased revenues of $50,000 per year, create a table showing the following items for each of years 0 through 4: before-tax cash flow; depreciation; taxable income; income tax; and after-tax cash flow. Assume a tax rate of 40%.
Homework Answers
MACRS Dep rate for 3 yr property are 0.3333, 0.4445, 0.1481 & 0.0741
Tax rate = 40%
Depreciation = Purchase value * Depreciation rate
Taxable income = Net cash flow - Depreciation
Tax = Tax rate * Taxable income
ATCF = Taxable income - Tax + Depreciation
Using Excel
| Year | Initial cost | Revenue | Depreciation | TI | Tax | ATCF |
| 0 | -75000.00 | -75000.00 | ||||
| 1 | 50000.00 | 24997.50 | 25002.50 | 10001.00 | 39999.00 | |
| 2 | 50000.00 | 33337.50 | 16662.50 | 6665.00 | 43335.00 | |
| 3 | 50000.00 | 11107.50 | 38892.50 | 15557.00 | 34443.00 | |
| 4 | 50000.00 | 5557.50 | 44442.50 | 17777.00 | 32223.00 |
Showing formula in Excel
| Year | Initial cost | Revenue | Depreciation | TI | Tax | ATCF |
| 0 | -75000 | -75000 | ||||
| 1 | 50000 | =0.3333*75000 | =C171-D171 | =E171*0.4 | =E171-F171+D171 | |
| 2 | 50000 | =0.4445*75000 | =C172-D172 | =E172*0.4 | =E172-F172+D172 | |
| 3 | 50000 | =0.1481*75000 | =C173-D173 | =E173*0.4 | =E173-F173+D173 | |
| 4 | 50000 | =0.0741*75000 | =C174-D174 | =E174*0.4 | =E174-F174+D174 |
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Madison Woodworking Company bought a lathe for $75,000. It is
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