A company has taxable income from other sources of $58,000 per year. It is considering the purchase of a front-end loader truck that costs $70,000 and has an estimated salvage value of $10,000 at the end of 5 years useful life. The company has an incremental state income tax rate of 8%.
A) Compute the MACRS depreciation schedule and any taxable gain or loss when the truck is sold. What is this taxable gain called?
B) If the purchasing company’s taxable income remained at $58,000 from all other sources in the year that the truck was sold, how much extra would the company have to pay in corporate income taxes (Federal+State) because of the additional taxable income from the truck sale?
C) The company’s cost of money is 8%, and they add 4 percentage points to get a MARR of 12%. If the truck were to reduce labor costs by $15,000/year for each of its five useful years, should the company buy it?