Holooly Plus Logo
Holooly Plus Logo

Question 7.T-Y-S.A: Why would a business elect, under MACRS, to use the ADS rath...

Why would a business elect, under MACRS, to use the ADS rather than the GDS? (7.4)

The Blue Check Mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

Under MACRS, the ADS might be preferred to the GDS in several cases. If profits are expected to be relatively low in the near future, but were going to increase to a fairly constant level after that, the ADS would be a way to “save up” depreciation for when it is needed later. In essence, income taxes would be deferred until a later time when the firm is financially better able to pay them.

Related Answered Questions

In a chlorine-fluxing installation in a large aluminum company, engineers are considering the replacement of existing plastic pipe fittings with more expensive, but longer lived, copper fittings. The following table gives a comparison of the capital investments, lives, salvage values, and so on of

Verified Answer:
Assume repeatability. Alternative A: Plastic [late...

A drug store is looking into the possibility of installing a “24/7” automated prescription refill system to increase its projected revenues by $20,000 per year over the next 5 years. Annual expenses to maintain the system are expected to be $5,000. The system will have no market value at the end of

Verified Answer:
EOY BTCF Depreciation Taxable Income Income Tax AT...

If a company’s total effective income tax rate is 40% and its state income tax rate is 20%, what is the company’s federal income tax rate? (7.7) (a) 20% (b) 25% (c) 35% (d) 40% (e) 52%

Verified Answer:
Using Equation (7-15): t= State rat...

The before-tax MARR for a particular firm is 18% per year. The state income tax rate is 5%, and the federal income tax rate is 39%. State income taxes are deductible from federal taxable income. What is this firm’s after-tax MARR? (7.7)

Verified Answer:
t=0.5+(1-0.5)(0.39)=0.4205 (effecti...

If the incremental federal income tax rate is 34% and the incremental state income tax rate is 6%, what is the effective combined income tax rate (t)? If state income taxes are 12% of taxable income, what now is the value of t? (7.7)

Verified Answer:
\begin{aligned} t &=0.06+0.34(1-0.06)=0...

Impact of a Longer Depreciation Schedule on After-Tax PW and IRR Suppose the machinery in Example 7-15 had been classified in the 10-year MACRS (GDS) property class. Calculate the new after-taxPWand after-tax IRR. Why are these results different than the results of Example 7-15?

Verified Answer:
If the machinery in Example 7-15 had been classifi...

EVA Consider the following proposed capital investment in an engineering project and determine its (a) year-by-year ATCF, (b) after-tax AW, (c) annual equivalent EVA. Proposed capital investment = $84,000 Salvage value (end of year four) = $0 Annual expenses per year = $30,000 Gross revenues per

Verified Answer:
(a) Year-by-year ATCF amounts are shown in the fol...

After-Tax Analysis of Alternatives with Unequal Lives A firm must decide between two system designs, S1 and S2, whose estimated cash flows are shown in the following table. The effective income tax rate is 40% and MACRS (GDS) depreciation is used. Both designs have a GDS recovery period of five

Verified Answer:
Note that the design alternatives have different u...

After-Tax Analysis of an Integrated Circuit Production Line The Ajax Semiconductor Company is attempting to evaluate the profitability of adding another integrated circuit production line to its present operations. The company would need to purchase two or more acres of land for $275,000 (total).

Verified Answer:
TABLE 7-8 After-Tax Analysis of Example 7-18 E...

Computing After-Tax PW and IRR Certain new machinery, when placed in service, is estimated to cost $180,000. It is expected to reduce net annual operating expenses by $36,000 per year for 10 years and to have a $30,000 MV at the end of the 10th year. (a) Develop the ATCFs and BTCFs. (b) Calculate

Verified Answer:
Solution by Hand (a) Table 7-6 applies the format ...