Answer:

Given information:

• A print shop's taxable income is worth of $300,000.

• Price of new machine is $105,000.

• New machine depreciates in 5 years MACRS rate.• Salvage value at the end of 6 th year is $30,000.

• Before tax annual revenue is $120,000.

a.Marginal tax rate:

Table-1 shows the marginal tax rate.

Table-1 Steps:

• Before tax annual revenue for 6 years is presented in Column 2.

• 5 years MACRS rate depreciation rate is presented in Column 3.

• Depreciation of new machine is calculated in Column 4, where new machine price is multiplied with Column 3.

• Taxable income is calculated in Column 5 (Column 2 minus Column 4).

• Combined income is calculated in Column 6, which is obtained by adding taxable income after project (in Column 5) and taxable income after project ($300,000).

• Marginal tax rate is shown in Column 7. Since the income in 6 years range between $10 million to $15 million, marginal tax rate is 34 percent.

b.Average tax:

Average tax rate is the percentage of taxable amount on total income.Table-2 Hence, the average tax rate is percent.

Answer:

Given information:

• Cost of new system is $360,000.

• Savings per year is $52,500.

• Salvage value is 20,000.

• Combined tax rate is 40 percent.

• Minimum annual rate of return is 12 percent.

• Time period is 12 years.

Recovery rate for 7 year:

Table-1 shows the recovery rate under the General Depreciation System for 7 year

Table-1 First year depreciation:

Depreciation can be calculated by using the following formula. …… (1)Substitute the respective values in Equation (1) to calculate the depreciation in first year. Hence, the depreciation in the first year is .

Depreciation for all the years:

Hence, similar calculation is done in Table-2 to obtain the depreciation by using the Equation (1).

Table-2 First year net cash flow:

Net cash flow can be calculated by using the following formula. …… (2)Where, = net cash flow of the i th year

S = savings per year = depreciation of the i th year

TR = tax rate

Substitute the respective values in Equation (2) to calculate the first year net cash flow. Hence, the first year net cash flow is .

Taxable gain:

Taxable gain can be calculated by using the following formula. When the asset is disposed, half year depreciation should be calculated. …… (3)Where,

TG = taxable gain

TR = tax rate =recovery rate of i th year

SV = salvage value

Substitute the respective values in Equation (3) to calculate the taxable gain. Taxable gain is .

Net cash flow for all the year:

Hence, similar calculation is done in Table-3 to obtain the net cash flow by using the Equation (2) Final year net cash flow can be obtained by adding the salvage value and subtracting the capital gain.

Table -3 In 12 th year cash flow is sum of annual cash flow worth of $31,500 and salvage value worth of $20,000 minus taxable gain worth of $8,000.

Present value:

Present value of net cash flow can be calculated by using the following formula: …… (4)Where,

i = interest

n = time period

PV = present value

SV = salvage value

CG = capital gain = cash flow of i th year

Substitute the respective values in Equation (4) to calculate the present value of the net cash flow. The present value of the cash flow is . Hence, option b is correct.

Answer:

Given information:

• Sales volume of a company is $500,000.

• Fixed cost is $250,000.

a.Contribution margin percentage:

Contribution margin percentage can be obtained by using the following formula: …… (1)Substitute the respective values in Equation (1) to obtain the contribution margin percentage. Hence, the contribution margin percentage is percentage.

b.Per unit selling price:

The contribution margin percentage is equal to 0.5 and variable cost is $15 per unit; hence, the selling price is as follows: Hence, the per unit selling price is .