Telstar Communications is going to purchase an asset for $460,000 that will produce $220,000 per year for the next four years in earnings before depreciation and taxes.
The asset will be depreciated using the three-year MACRS depreciation schedule in Table 12-12.
(This represents four years of depreciation based on the half-year convention.)
The firm is in a 35 percent tax bracket.
Fill in the schedule below for the next four years.
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
| Earnings before depreciation and taxes |
$220,000 |
$220,000 |
$220,000 |
$220,000 |
| Depreciation |
153,333 |
204,496 |
68,126 |
34,045 |
| Earnings before taxes |
$66,667 |
$15,504 |
$151,874 |
$185,955 |
| Taxes |
|
|
53,156 |
65,084 |
| Earnings after taxes |
$66,667 |
$15,504 |
$98,718 |
$120,871 |
| Depreciation |
153,318 |
204,496 |
68,126 |
34,045 |
| Cash flow |
$219,985 |
$220,000 |
$166,844 |
$154,916 |