Question in Accounting
1.Assume that abdel business corporation is purchasing new equipment, for 350,000$ at the beginning of 2014. Assume that abdel business corporation is in the 30% corporate tax bracket. This equipmentwill result in lower operating costs of 100,000$ for each of the next seven years. You anticipate that the equipment will be sold for its expected Salvage value of 80,000 at the end of 7 years. You may assume that all lower operating costs occur right at the end of each year. The company ususlly uses the macrs accelerated tables for tax depreciation purposes. Use 12% as the rate for valuing capital investment.
question: Create a time-line spreadsheet which will shot the present value of each element of this proposed purchase( purchase, operating cost savings, income tax effect of lower operating costs, income tax effect of depreciation, sale of asset, tax effect of sale of asset. then, calculate the net present value of this proposed purchase.
2. This is the same as#1 above, except you can assume that there is a 10% investment tax credit that congress has authorized for any purchase of equipment during 2014.