Western Inc. purchases a machine for $15,000. This machine qualifies as a five-year recovery asset under MACRS with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. Western has a tax rate of 33%. If the machine is sold at the end […]
Date: September 19th, 2020
As firms are unable to match cash inflows to outflows with certainty, most of them need current liabilities. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
A loss on disposal is recognized when the selling price of the asset is ________ the book value. A) greater than B) equal to C) less than D) less than or equal to ANSWER Answer: C
Date: September 19th, 2020
The accelerated write-off of capital costs in MACRS depreciation provides a taxable expense that reduces taxes at a faster rate than with straight-line depreciation. Therefore, according to ________ concepts, we can surmise that bigger tax cuts in the earlier years and lower tax cuts in the later years are better than a steady tax cut […]
Date: September 19th, 2020
MACRS allocates the same amount of cost each period as determined by the total initial cost divided by the number of years of useful life of the machines. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: STRAIGHT LINE DEPRECIATION allocates the same amount of cost each period as determined […]
Date: September 19th, 2020
Leland and Pyle (1977) examine the effect of informational asymmetries on equilibrium corporate valuation and financial structure. The authors develop a signaling model and work through a specific example, focusing on optimal debt levels under conditions of asymmetric information. In their signaling model, an entrepreneur seeks financing for a project whose true value is known […]
Date: September 19th, 2020
Briefly describe MACRS depreciation. What will be an ideal response? ANSWER Answer: MACRS is a government-mandated accelerated depreciation system that depreciates the capital asset at the maximum accelerated amount allowed each year. MACRS stands for modified accelerated cost recovery system and classifies the “life” of every asset for use in determining the depreciation […]
Date: September 19th, 2020
Briefly describe straight-line depreciation. What will be an ideal response? ANSWER Answer: With straight-line depreciation, capital assets are depreciated by the same amount each year. The annual depreciation is determined by the initial cost plus installation cost less anticipated salvage value, and this entire amount divided by the number of years of useful […]
Date: September 19th, 2020
MACRS stands for modified accelerated cost recovery system and classifies the “life” of every asset for use in determining the depreciation expense each year. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
A firm is considering purchasing an asset that will cost $1 million. Other depreciable costs include $100,000 in installation costs. If the asset is classified in the 3-year class, what is the annual depreciation for each year for this asset using the fixed depreciation percentages given by MACRS? (The percentages are 33.33%, 44.45%, 14.81%, and […]
Date: September 19th, 2020
