1. A new press brake costs Medicine H a t Steel $780 000. It is expected to last 20 years, with a $60 000 salvage value. W h a t rate of depreciation for the declining-balance method will produce a book value after 20 years that equals the salvage value of the press?
2. (a) Using straight-line depreciation, what is the book value after four years for an asset costing $150 000 that has a salvage value of $25 000 after 10 years? What is the depreciation charge in the fifth year?
(b) Using declining-balance depreciation with d = 20%, what is the book value after four years for an asset costing $150 000? W h a t is the depreciation charge in the fifth year?
(c) W h a t is the depreciation rate using declining-balance for an asset costing $150 000 that has a salvage value of $25 000 after 10 years?
3. T h e MARR generally used by Collingwood Caskets is a before-tax M A R R of 14%
Vincent wants to do a detailed calculation of the cash flows associated with a new planer for the assembly line. W h a t would be an appropriate after-tax MARR for him to use if
Collingwood Caskets pays
(a) 40% corporate taxes?
(b) 50% corporate taxes?
(c) 60% corporate taxes?
4. A company's first year's operations (in 1976) can be summarized as follows:
Revenues: $110 000
Expenses (except CCA): $65 000
T h e i r capital asset purchases in the first year totalled $100 000. W i t h a C C A rate of
20% and a tax rate of 5 5 % , how much income tax did they pay?
5. A slitter for sheet sandpaper owned by Abbotsford Abrasives (AA) requires regular maintenance costing $7500 per year. Every five years it is overhauled at a cost of $25 000.
T h e original capital cost was $200 000, with an additional $25 000 in non-capital expenses that occurred at the time of installation. T h e machine has an expected life of 20 years and a $15 000 salvage value. T h e machine will not be overhauled at the end of its life. AA pays taxes at a rate of 4 5 % and expects an after-tax rate of return of 10% on investments. Recalling that the C C A rate for production equipment is 2 0 % , what is the after-tax annual cost of the slitter?