[barelystayingsane]

I was getting $121,000 for this question, but it’s not one of the options. Aren’t you supposed to capitalize and depreciate installation charges for tax purposes?

Barclay Corp. invested $600,000 in a capital project, including $40,000 in installation charges. The project had a useful life of 12 years with no salvage value and generated cash flows of $150,000 each year. Assuming a 30% tax rate and straight-line depreciation for tax purposes, Barclay’s after-tax cash flows per year would have been equal to:

They say the answer is $120,000, because they did not depreciate installation charges.

[rupert]

Here's my understanding:

$600,000/12 years = $50,000 depreciation expense per year. Note the $40,000 is already included in the $600,000.

Cash flow: $ 150,000

Less Depr Exp: $ (50,000)

---

Taxable Income: $ 100,000

Taxable Income: $100,000

Tax Rate x 30%

---

Tax: $30,000

Cash Flow : $ 150,000

Less Tax : $ (30,000)

---

After-tax Cash Flow: $ 120,000

FAR 90 Oct. 6, 2012
AUD 96 Dec. 8, 2012
REG 93 May 30, 2013
BEC 84 Aug. 31, 2013

NIU CPA Review Correspondence and Wiley Test Bank

[barelystayingsane]

Ohhh didn't see that the depreciation was already included. I'm an idiot….gotta RTMFQ. I think that means it's time to go to bed.

[Author]

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