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kvv77 [185]
3 years ago
13

A local firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing at a 5% rate, and its tax rat

e is 40%. A similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what is the value of your firm's tax shield, i.e., how much value does the use of debt add?
Business
1 answer:
Over [174]3 years ago
8 0

Answer:

local firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what is the value of your firm's tax shield, i.e., how much value does the use of debt add?

Explanation:

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3 years ago
Nicole’s Getaway Spa (NGS) purchased a hydrotherapy tub system to add to the wellness programs at NGS. The machine was purchased
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Answer:

Nicole's Getaway Spa (NGS)

1. Depreciation Schedules:

A. Straight-line method:

Year       Depreciation    Book Value   Accumulated   Net Book Value

                Expense            of asset      Depreciation

Year 1        $3,000            $16,000            $3,000             $13,000

Year 2         3,000              16,000               6,000               10,000

Year 3         3,000              16,000               9,000                7,000

Year 4         3,000              16,000             12,000                4,000

Year 5         3,000              16,000             15,000                1,000

B. Units-of-production method:

Year       Depreciation    Book Value   Accumulated   Net Book Value

                Expense            of asset      Depreciation

Year 1        $3,600            $16,000             $3,600              $12,400

Year 2         3,450               16,000               7,050                  8,950

Year 3         3,300               16,000             10,350                  5,650

Year 4         3,150                16,000             13,500                  2,500

Year 5        1,500                16,000             15,000                   1,000

C. Double-declining-balance method:

Year       Depreciation    Book Value   Accumulated   Net Book Value

                Expense            of asset      Depreciation

Year 1        $6,400            $16,000             $6,400              $9,600

Year 2         3,840               16,000              10,240                 5,760

Year 3         2,304               16,000              12,544                 3,456

Year 4          1,382               16,000              13,926                 2,074

Year 5         1,074                16,000             15,000                  1,000

2. Sale of machine for $3,000 at the end of year 3:

Journal Entry of disposal:

1) Straight-line method:

Debit Cash $3,000

Credit Sale of Equipment $3,000

To record the disposal of the equipment.

Debit Sale of Equipment $16,000

Credit Equipment $16,000

To transfer equipment to sale of equipment.

Debit Accumulated Depreciation $9,000

Credit Sale of Equipment $9,000

To close accumulated depreciation.

Debit Income Summary $4,000

Credit Sale of Equipment $4,000

To record the loss from sale of equipment.

2) Units-of-production method:

Debit Cash $3,000

Credit Sale of Equipment $3,000

To record the disposal of the equipment.

Debit Sale of Equipment $16,000

Credit Equipment $16,000

To transfer equipment to sale of equipment.

Debit Accumulated Depreciation $10,350

Credit Sale of Equipment $10,350

To close accumulated depreciation.

Debit Income Summary $2,650

Credit Sale of Equipment $2,650

To record the loss from sale of equipment.

3) Double-declining method:

Debit Cash $3,000

Credit Sale of Equipment $3,000

To record the disposal of the equipment.

Debit Sale of Equipment $16,000

Credit Equipment $16,000

To transfer equipment to sale of equipment.

Debit Accumulated Depreciation $12,544

Credit Sale of Equipment $12,544

To close accumulated depreciation.

Debit Income Summary $456

Credit Sale of Equipment $456

To record the loss from sale of equipment.

Explanation:

a) Data and Calculations:

Cost of machine =     $16,000

Residual value =             1,000

Depreciable amount $15,000

Estimated useful life = 5 years

Annual depreciation expense/rate:

A. Straight-line method = $3,000 ($15,000/5)

B. Unit of production method = $1.50 per unit ($15,000/10,000)

Year 1 = $3,600 (2,400 * $1.50)

Year 2 = $3,450 (2,300 * $1.50)

Year 3 = $3,300 (2,200 * $1.50)

Year 4 = $3,150 (2,100 * $1.50)

Year 5 = $1,500 (1,000 * $1.50)

C. Double-declining balance method:

Straight-line method rate = 20% (100/5)

Double-declining rate = 40% (20% * 2)

Year 1 = $6,400 ($16,000 * 40%) Balance $9,600

Year 2 = $3,840 ($9,600 * 40%) Balance $5,760

Year 3 = $2,304 ($5,760 * 40%) Balance $3,456

Year 4 = $1,382 ($3,456 * 40%) Balance $2,074

Year 5 = $1,074 ($2,078 - $1,000) Balance $1,000

6 0
3 years ago
1.1  Basic terminologies in agricultural accounting 1.2   Recognition and measurement of agricultural produces 1.3   Reporting a
My name is Ann [436]

not understand question sry

7 0
1 year ago
Foxburg Company has the following information: Work-in-Process Finished Goods Materials Beginning inventory$1,250 $1,350 $1,450
klasskru [66]

Answer:

$22,200

Explanation:

Particulars                                        Amount

Cost of Goods Sold                          $19,400

Ending inventory Finished Goods   <u>$2,800</u>

Cost of goods available for sale    <u>$22,200</u>

6 0
3 years ago
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