1. Crown Cola is considering expanding its bottling plant by purchasing a new bottling machine. Below is information on the expansion project
Bottling machine price: 1,000,000
Installation cost: 200,000
Expected life: six years.
Depreciation: straight line over six years.
Anticipated salvage value at the end of six years: $200,000
Expected incremental revenues: 300,000 in year 1, 800,000 in years 2-6.
Expected incremental expenses: 300,000 in year 1, 400,000 in years 2-6.
Required Net Working Capital at year 0: 100,000 (assume that you recoup all of this when you scrap the machine in year 6).
Tax Rate: 35%.
1. True or False?: Firms will generally use straight line deprectation on their financial accounting statements and accelerated depreciation on their tax accounting statements.