Problem 1. Assume a $4,000 investment and the following cash flows for two alternatives.
|
Year
|
Investment X
|
Investment Y
|
|
1
|
$1,000
|
$1,300
|
|
2
|
800
|
2,800
|
|
3
|
700
|
100
|
|
4
|
1,900
|
|
|
5
|
2,000
|
|
a. Under the payback method, which investment should be chosen? (Show your work/analysis/calculations for each investment).
b. Why do other methods allow for a better analysis?
Problem 2. A firm purchases an asset falling into the 3-year MACRS category for $78,000. The second year's depreciation expense for this asset would be? (Use table below to solve. Show all work/calculations/formulas)
Depreciation 3-Year 5-Year 7-Year 10-Year 15-Year 20-Year
Year MACRS MACRS MACRS MACRS MACRS MACRS
1 . . . . . . .333 .200 .143 .100 .050 .038
2 . . . . . . .445 .320 .245 .180 .095 .072
3 . . . . . . .148 .192 .175 .144 .086 .067
4 . . . . . . .074 .115 .125 .115 .077 .062
5 . . . . . . .115 .089 .092 .069 .057
6 . . . . . . .058 .089 .074 .062 .053
7 . . . . . . .089 .066 .059 .045
8 . . . . . . .045 .066 .059 .045
9 . . . . . . .065 .059 .045
10 . . . . . . .065 .059 .045
11 . . . . . . .033 .059 .045
12 . . . . . . .059 .045
13 . . . . . . .059 .045
14 . . . . . . .059 .045
15 . . . . . . . .059 .045
16 . . . . . . .030 .045
17 . . . . . . .045
18 . . . . . . .045
19 . . . . . . .045
20 . . . . . . .045
21 . . . . . . _____ _____ _____ _____ _____ .017__
1.000 1.000 1.000 1.000 1.000 1.000