25 Jul HOW SHOULD THE $1000000 IN DEVELOPMENT COST BE CLASSIFIED?
11-4Skunk costs and opportunity cost Masters Golf Products Inc. spen Show more Pleas show all work Thanks 11-4Skunk costs and opportunity cost Masters Golf Products Inc. spent 3 years and $1000000 to develop its new line of club plans to replace a line that is becoming obsolete. To begin manufacturing them the company will have to invest $18000000 in new equipment. The new clubs are expected to generate and increase in operating cash inflows of $750 00 per year for the next ten years. The company has determined that the exiting line could be sold to a competitor for $250000. a). How should the $1000000 in development cost be classified? b). How should the $250000 sale price for the existing line be classified? c). Depict all the known relevant cash flow on a time line. 11-8-Book value and taxes on sales assets Troy Industries purchased a new machine 3 years ago for $80000. It is being depreciated under MACRS with a five year recovery period using the percentages given in Table 4.2. Assume a 40% tax rate. a). What is the book value of the machine? b). Calculate the firms tax liability if it sold the machine for each of the following amounts: $100000 $56 000 $23300 and $15000. Table 4.2-Percentage by recovery year Recovery year 3 years 5 years 33% 20% 45 32 15 19 4 7 12 5 12 6 5 . Totals 100% 100% P11-17 Incremental operating cash flows Richard and Linda Thomson operates a local lawn maintenance services for commercial and residential property. They have been using a John Deer riding mower for the past several years and believe that it is time to buy a new one. They would like to know the incremental (relevant) cash flows associated with the replacement of the old riding mower. The following data are available. There are five years remaining useful life on the mower. The old mower has zero book value. The new mower is expected to last 5 years. The Thompsons will follow a 5 year MACRS recovery period for the new mower. Depreciation value of the new mower is $1800. They are subject to a 40% tax rate. The new mower is expected to be mower fuel efficient maneuverable and durable than the previous models and can result in reduced operating expense of $500 per year. The Thompsons will buy a maintenance contract that calls for annual payments of $120. Create an incremental operating cash flow statement for the replacement of Richard and Lindas John Deer riding mower. Show the incremental operating cash flow for the next six years. Show less
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