PROBLEM 9.9
a$50,001.00
b TI= $83,928.580
TI TAX
$50,000.00 $7,500.00
$25,000.00 $6,250.00
$8,928.58 $3,035.72
$0.00
$0.00
$0.00
$0.00
$0.00
$83,928.580 $16,785.72 20.0000014% TOTALS
c TI= $119,642.86
TI TAX
$50,000.00 $7,500.00
$25,000.00 $6,250.00
$25,000.00 $8,500.00
$19,642.86 $7,660.72
$0.00
$0.00
$0.00
$0.00
$119,642.86 $29,910.72 25.0000003% TOTALS
PROBLEM 9.10
a TI= $100,001.00
b TI= $335,000.00
TI TAX
$50,000.00 $7,500.00
$25,000.00 $6,250.00
$25,000.00 $8,500.00
$235,000.000 $91,650.00
$0.00
$0.00
$0.00
$0.00
$335,000.000 $113,900.00 34.0000000% TOTALS
c TI= $18,333,333.33
TI TAX
$50,000.00 $7,500.00
$25,000.00 $6,250.00
$25,000.00 $8,500.00
$235,000.00 $91,650.00
$9,665,000.00 $3,286,100.00
$5,000,000.00 $1,750,000.00
$3,333,333.33 $1,266,666.67
$0.00
PROBLEM 9.11
BASE TAX WITH INCREASE TAX
TI TAX RATE TI TAX RATE
$50,000.00 $7,500.00 15% $50,000.00 $7,500.00 15%
$25,000.00 $6,250.00 25% $25,000.00 $6,250.00 25%
$25,000.00 $8,500.00 34% $25,000.00 $8,500.00 34%
$235,000.00 $91,650.00 39% $235,000.00 $91,650.00 39%
$385,000.00 $130,900.00 34% $525,000.00 $178,500.00 34%
$0.00 $0.00 35% $0.00 $0.00 35%
$0.00 $0.00 38% $0.00 $0.00 38%
$0.00 $0.00 35% $0.00 $0.00 35%
$720,000.00 $244,800.00 TOTALS $860,000.00 $292,400.00 TOTALS
a34.00%
b34.00%
c34.00%
d34.00%
PROBLEM 9.12
LAST YR THIS YR
TI TAX TI TAX
$41,000.00 $6,150.00 $50,000.00 $7,500.00
$0.00 $25,000.00 $6,250.00
$0.00 $25,000.00 $8,500.00
$0.00 $116,000.00 $45,240.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$41,000.00 $6,150.00 TOTALS $216,000.00 $67,490.00 TOTALS
a15.00%
b31.25%
c35.05%
d39.00% LAST $ IS TAXED AT 39%
PROBLEM 9.13
LAST YR THIS YR
TI TAX TI TAX
$30,000.00 $4,500.00 $50,000.00 $7,500.00
$0.00 $20,000.00 $5,000.00
$0.00 $0.00 $0.00
$0.00 $0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$30,000.00 $4,500.00 TOTALS $70,000.00 $12,500.00 TOTALS
a15.00%
b17.86%
c20.00%
d25.00% LAST $ IS TAXED AT 25%
PROBLEM 9.14
BASE WITH INCREASE
TI TAX TI TAX
$50,000.00 $7,500.00 $50,000.00 $7,500.00
$25,000.00 $6,250.00 $25,000.00 $6,250.00
$25,000.00 $8,500.00 $25,000.00 $8,500.00
$235,000.00 $91,650.00 $235,000.00 $91,650.00
$9,665,000.00 $3,286,100.00 $9,665,000.00 $3,286,100.00
$5,000,000.00 $1,750,000.00 $5,000,000.00 $1,750,000.00
$3,333,333.00 $1,266,666.54 $3,333,333.00 $1,266,666.54
$866,667.00 $303,333.45 $7,366,667.00 $2,578,333.45
$19,200,000.00 $6,719,999.99 TOTALS $25,700,000.00 $8,994,999.99 TOTALS
a 35.00%
b 35.00%
c 35.00%
d 35.00%
PROBLEM 9.15
SINCE THE INCREMENTAL TAX RATE IS 36.5%, 50% OF THE $150,000 INCREASE WAS IN THE 39% BRACKET; 50% IN THE 34% BRACKET
BASE TAX WITH INCREASE TAX
TI TAX RATE TI TAX RATE
$50,000.00 $7,500.00 15% $50,000.00 $7,500.00 15%
$25,000.00 $6,250.00 25% $25,000.00 $6,250.00 25%
$25,000.00 $8,500.00 34% $25,000.00 $8,500.00 34%
$150,000.00 $58,500.00 39% $225,000.00 $87,750.00 39%
$0.00 $0.00 34% $75,000.00 $25,500.00 34%
$0.00 $0.00 35% $0.00 $0.00 35%
$0.00 $0.00 38% $0.00 $0.00 38%
$0.00 $0.00 35% $0.00 $0.00 35%
$250,000.00 $80,750.00 TOTALS $400,000.00 $135,500.00 TOTALS
a $250,000.00
b $135,500.00
PROBLEM 9.16
SINCE THE INCREMENTAL TAX RATE IS 31.75%, 25% OF THE $20,000 INCREASE WAS IN THE 25% BRACKET; 75% IN THE 34% BRACKET
BASE WITH INCREASE
TI TAX TI TAX
$50,000.00 $7,500.00 $50,000.00 $7,500.00
$20,000.00 $5,000.00 $25,000.00 $6,250.00
$0.00 $0.00 $15,000.00 $5,100.00
$0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00
$70,000.00 $12,500.00 TOTALS $90,000.00 $18,850.00 TOTALS
a $70,000.00
b $18,850.00
PROBLEM 9.17
SINCE THE INCREMENTAL TAX RATE IS 34.33%, 33.33% OF THE $3,000,000 DECREASE WAS IN THE 35% BRACKET; 66.67% IN THE 34% BRACKET
BASE WITH DECREASE
TI TAX TI TAX
$50,000.00 $7,500.00 $50,000.00 $7,500.00
$25,000.00 $6,250.00 $25,000.00 $6,250.00
$25,000.00 $8,500.00 $25,000.00 $8,500.00
$235,000.00 $91,650.00 $235,000.00 $91,650.00
$9,665,000.00 $3,286,100.00 $7,665,000.00 $2,606,100.00
$1,000,000.00 $350,000.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00
$11,000,000.00 $3,750,000.00 TOTALS $8,000,000.00 $2,720,000.00 TOTALS
a $11,000,000.00
b $2,720,000.00
PROBLEM 9.19
EOY END-OF-YEAR
BTCF BEFORE-TAX CASH FLOW
DWO DEPRECIATION WRITE-OFF (MACRS-GDS DEDUCTION)
TI TAXABLE INCOME
T TAX itr = 40%
ATCF AFTER-TAX CASH FLOW
MACRS-GDS 5-YEAR PROPERTY CLASS
a EOY BTCF DWO TI T ATCF MACRS
0 -$50,000.00 -$50,000.00
1$14,000.00 $10,000.00 $4,000.00 $1,600.00 $12,400.00 20.00
2$14,000.00 $16,000.00 -$2,000.00 -$800.00 $14,800.00 32.00
3$14,000.00 $9,600.00 $4,400.00 $1,760.00 $12,240.00 19.20
4$14,000.00 $5,760.00 $8,240.00 $3,296.00 $10,704.00 11.52
5$14,000.00 $5,760.00 $8,240.00 $3,296.00 $10,704.00 11.52
6$14,000.00 $2,880.00 $11,120.00 $4,448.00 $9,552.00 5.76
7$14,000.00 $0.00 $14,000.00 $5,600.00 $8,400.00 0.00
8$14,000.00 $0.00 $14,000.00 $5,600.00 $8,400.00 0.00
b EOY BTCF DWO TI T ATCF
0 -$50,000.00 -$50,000.00
1$14,000.00 $10,000.00 $4,000.00 $1,600.00 $12,400.00
2$14,000.00 $10,000.00 $4,000.00 $1,600.00 $12,400.00
3$14,000.00 $10,000.00 $4,000.00 $1,600.00 $12,400.00
4$14,000.00 $10,000.00 $4,000.00 $1,600.00 $12,400.00
5$14,000.00 $10,000.00 $4,000.00 $1,600.00 $12,400.00
6$14,000.00 $0.00 $14,000.00 $5,600.00 $8,400.00
7$14,000.00 $0.00 $14,000.00 $5,600.00 $8,400.00
8$14,000.00 $0.00 $14,000.00 $5,600.00 $8,400.00
PROBLEM 9.20
EOY END-OF-YEAR
BTCF BEFORE-TAX CASH FLOW
DWO DEPRECIATION WRITE-OFF (MACRS-GDS DEDUCTION)
TI TAXABLE INCOME
T TAX itr = 40%
ATCF AFTER-TAX CASH FLOW
MACRS-GDS 3-YEAR PROPERTY CLASS
a EOY BTCF DWO TI T ATCF MACRS
0 -$30,000.00 -$30,000.00
1$14,000.00 $9,999.00 $4,001.00 $1,600.40 $12,399.60 33.33
2$14,000.00 $13,335.00 $665.00 $266.00 $13,734.00 44.45
3$14,000.00 $4,443.00 $9,557.00 $3,822.80 $10,177.20 14.81
4$14,000.00 $2,223.00 $11,777.00 $4,710.80 $9,289.20 7.41
5$14,000.00 $0.00 $14,000.00 $5,600.00 $8,400.00 0.00
B5 = $0.00
b EOY BTCF DWO TI T ATCF
0 -$30,000.00 -$30,000.00
1$14,000.00 $7,500.00 $6,500.00 $2,600.00 $11,400.00
2$14,000.00 $7,500.00 $6,500.00 $2,600.00 $11,400.00
3$14,000.00 $7,500.00 $6,500.00 $2,600.00 $11,400.00
4$14,000.00 $7,500.00 $6,500.00 $2,600.00 $11,400.00
5$16,000.00 $0.00 $14,000.00 $5,600.00 $10,400.00
B5 = $2,000.00
PROBLEM 9.21
EOY END-OF-YEAR
BTCF BEFORE-TAX CASH FLOW
DWO DEPRECIATION WRITE-OFF (MACRS-GDS DEDUCTION)
TI TAXABLE INCOME
T TAX itr = 40%
ATCF AFTER-TAX CASH FLOW
MACRS-GDS 3-YEAR PROPERTY CLASS
EOY BTCF DWO TI T ATCF MACRS
0 -$35,000.00 -$35,000.00
1$14,000.00 $11,665.50 $2,334.50 $933.80 $13,066.20 33.33
2$14,000.00 $15,557.50 -$1,557.50 -$623.00 $14,623.00 44.45
3$14,000.00 $5,183.50 $8,816.50 $3,526.60 $10,473.40 14.81
4$14,000.00 $2,593.50 $11,406.50 $4,562.60 $9,437.40 7.41
5$15,750.00 $0.00 $15,750.00 $6,300.00 $9,450.00 0.00
B5 = $0.00
PROBLEM 9.22
BASIS $1,400,000.00 BTCF $400,000.00 TAX RATE 40.00%
EST SALV $200,000.00 USE LIFE 8
MARRAT = 10.00%
RCVD SALV $200,000.00 PERIODS 8
a SLN
EOY BTCF DWO TI T ATCF
0 -$1,400,000.00 -$1,400,000.00
1 $400,000.00 $150,000.00 $250,000.00 $100,000.00 $300,000.00
2 $400,000.00 $150,000.00 $250,000.00 $100,000.00 $300,000.00
3 $400,000.00 $150,000.00 $250,000.00 $100,000.00 $300,000.00
4 $400,000.00 $150,000.00 $250,000.00 $100,000.00 $300,000.00
5 $400,000.00 $150,000.00 $250,000.00 $100,000.00 $300,000.00
6 $400,000.00 $150,000.00 $250,000.00 $100,000.00 $300,000.00
SUM DEPR
MARRAT = 10%
$1,200,000.00
PWAT = $293,779.34
AWAT = $55,067.18
IRRAT = 15.24%
ERRAT = 12.65%
MARRAT = 10%
PWAT = $369,389.01
AWAT = $69,239.76
IRRAT = 17.34%
ERRAT = 13.27%
8 $600,000.00 $0.00 $400,000.00 $160,000.00 $440,000.00
SUM DEPR
MARRAT = 10%
$1,200,000.00
PWAT = $343,590.85
BOOK VALUE
FWAT = $736,517.50
$200,000.00
AWAT = $64,404.05
IRRAT = 16.61%
ERRAT = 13.06%
PROBLEM 9.23
BASIS $400,000.00 BTCF $95,000.00 TAX RATE 40.00%
EST SALV $30,000.00 USE LIFE 8
MARRAT = 12.00%
RCVD SALV $30,000.00 PERIODS 8
a SLN
EOY BTCF DWO TI T ATCF
0 -$400,000.00 -$400,000.00
4$95,000.00 $46,250.00 $48,750.00 $19,500.00 $75,500.00
5$95,000.00 $46,250.00 $48,750.00 $19,500.00 $75,500.00
FWAT = -$31,758.44
b MACRS(5)
EOY BTCF DWO TI T ATCF MACRS(5)
0 -$400,000.00 -$400,000.00
1$95,000.00 $80,000.00 $15,000.00 $6,000.00 $89,000.00 20.00%
2$95,000.00 $128,000.00 -$33,000.00 -$13,200.00 $108,200.00 32.00%
3$95,000.00 $76,800.00 $18,200.00 $7,280.00 $87,720.00 19.20%
4$95,000.00 $46,080.00 $48,920.00 $19,568.00 $75,432.00 11.52%
5$95,000.00 $46,080.00 $48,920.00 $19,568.00 $75,432.00 11.52%
6$95,000.00 $23,040.00 $71,960.00 $28,784.00 $66,216.00 5.76%
7$95,000.00 $0.00 $95,000.00 $38,000.00 $57,000.00
$400,000.00
BOOK VALUE
FWAT = $21,097.19
cDDB
EOY BTCF DWO TI T ATCF
0 -$400,000.00 -$400,000.00
1$95,000.00 $100,000.00 -$5,000.00 -$2,000.00 $97,000.00
2$95,000.00 $75,000.00 $20,000.00 $8,000.00 $87,000.00
3$95,000.00 $56,250.00 $38,750.00 $15,500.00 $79,500.00
4$95,000.00 $42,187.50 $52,812.50 $21,125.00 $73,875.00
5$95,000.00 $31,640.63 $63,359.38 $25,343.75 $69,656.25
6$95,000.00 $23,730.47 $71,269.53 $28,507.81 $66,492.19
7$95,000.00 $17,797.85 $77,202.15 $30,880.86 $64,119.14
8$125,000.00 $13,348.39 $71,606.45 $28,642.58 $96,357.42
SUM DEPR
MARRAT = 12%
$359,954.83
PWAT = $631.67
BOOK VALUE
FWAT = $1,563.98
$40,045.17
AWAT = $127.16
IRRAT = 12.05%
ERRAT = 12.02%
PROBLEM 9.24
a COST $400,000.00 BTCF $95,000.00 TAX RATE 40.00%
MARRAT = 12.00%
BONUS@END $30,000.00 PERIODS 8
EOY BTCF TI T ATCF
0 -$400,000.00 -$400,000.00 -$160,000.00 -$240,000.00
1 $95,000.00 $95,000.00 $38,000.00 $57,000.00
2 $95,000.00 $95,000.00 $38,000.00 $57,000.00
3 $95,000.00 $95,000.00 $38,000.00 $57,000.00
4 $95,000.00 $95,000.00 $38,000.00 $57,000.00
5 $95,000.00 $95,000.00 $38,000.00 $57,000.00
6 $95,000.00 $95,000.00 $38,000.00 $57,000.00
7 $95,000.00 $95,000.00 $38,000.00 $57,000.00
8 $125,000.00 $125,000.00 $50,000.00 $75,000.00
MARRAT = 12%
PWAT = $50,425.36
FWAT = $124,851.35
AWAT = $10,150.77
IRRAT = 17.63%
ERRAT = 14.70%
b PW HERE IS $50,425.36 VERSUS ONLY $8,520.80 WHERE MACRS-GDS(5) IS USED.
EXPENSING THE ENTIRE INVESTMENT IN YEAR 0 IS FAR MORE ATTRACTIVE
THAN DEPRECIATING IT OVER YEARS 1-6.
PROBLEM 9.25
BASIS $3,000,000.00 BTCF $500,000.00 TAX RATE 40.00%
EST SALV $250,000.00 USE LIFE 30
MARRAT = 9.00%
RCVD SALV $550,000.00 PERIODS 10
a SLN
EOY BTCF DWO TI T ATCF
0 -$3,000,000.00 -$3,000,000.00
1 $500,000.00 $91,666.67 $408,333.33 $163,333.33 $336,666.67
4 $536,870.91 $91,666.67 $445,204.25 $178,081.70 $358,789.21
5 $549,755.81 $91,666.67 $458,089.15 $183,235.66 $366,520.15
IRRAT = 7.98%
ERRAT = 8.40%
IRRAT = 8.38%
ERRAT = 8.65%
8 $590,295.81 $123,392.12 $466,903.69 $186,761.48 $403,534.33
9 $604,462.91 $115,165.98 $489,296.93 $195,718.77 $408,744.14
10 $1,168,970.02 $107,488.25 -$443,353.70 –$177,341.48 $1,346,311.50
SUM DEPR
MARRAT = 9%
$1,495,164.52
PWAT = -$92,396.74
BOOK VALUE
FWAT = -$218,736.69
$1,504,835.48
AWAT = -$14,397.27
IRRAT = 8.39%
ERRAT = 8.66%