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Local Weatherford businesses have noticed that pizza consumption seems to rise as SWOSU approaches the end of an academic semester. Little Ceasars is considering replacing their current pizza oven (a highly specialized product that handles food) with a higher capacity unit to tap into this increased demand. The oven they are currently using was purchased 4 years ago for $11,591,00, and could be sold today for $3,924.00. The the owners believe they could sell if for $1,414.00 three years from now if they keep using it. The faster new oven would cost $18,669.00 to purchase, and could likely be sold for $9,213.00 three years from now. Even though the oven will permit higher throughput, they do not anticipate any meaningful change in average inventory levels. They do, however, expect annual profits to increase by $55,000.00 if the new machine is purchased. Assume that this firm pays taxes at he current corporate tax rate of 21.0% If they decide to purchase the new machine, they will sell their current oven today. In that event, what will the initial cash outflow be? (answer in dollars, with a positive number, rounded to the nearest penny. For example, if your answer is -$123.456.78 you should enter 123456.78.)
MACRS PROPERTY CLASSES Property Class 3-year property 5-year property 7-year property 10-year property 15-year property 20-year property Personal Property (all property except real estate) • Special handling devices for food & beverage manufacture • Special tools for the manufacture of finished plastic products, fabricated metal products, & motor vehicles • Property with ADR class life of 4 years or less • Automobiles & trucks (The depreciation for automobiles is limited to $3560 the first tax year, $5700 the second year, $3560 the third year, & 2075 per year in subsequent years.) . Aircraft (of non-air-transport companies) Equipment used in research & experimentation • Computers Petroleum drilling equipment • Property with ADR class life of more than 4 years & less than 10 years All other property not assigned to another class • Office furniture, fixtures, & equipment Property with ADR class life of 10 years or more & less than 16 years • Assets used in petroleum refining & certain food products • Vessels & water transportation equipment . Property with ADR class life of 16 years or more & less than 20 years • Telephone distribution plants . Municipal sewage treatment plants . Property with ADR class life of 20 years or more & less than 25 years . Municipal sewers ● Property with ADR class life of 25 years or more
MACRS GDS rates for personal property Recovery 3-year 5-year Year 1 33.33 20.00 2 44.45 32.00 *14.81 19.20 7.41 $11.52 11.52 5.76 *Convert to straight-line 3 4 5 6 7 8 9 10 11 12-15 16 17-20 21 15-year 5.00 9.50 8.55 7.70 6.93 6.23 $5.90 5.90 5.91 5.90 5.91 5.9x 2.95 In 20-year 17-20 alternate 4.461 & 4.462 7-year 10-year 14.29 10.00 24.49 18.00 17.49 14.40 12.49 11.52 *8.93 9.22 8.92 7.37 8.93 *6.55 4.46 6.55 6.56 6.55 3.28 In 15-year 12-15 alternate 5.90 & 5.91 20-year 3.750 7.219 6.677 6.177 5.713 5.285 4.888 4.522 *4.462 4.461 4.462 4.461 4.461 4.46x 2.231