Answer Happy

Q3: Brockman Inc., acquired a drilling machine five years ago. The machine cost $30,000 and is being depreciated using the straight-line method over a 10-year period to an estimated salvage value of $0. A new, improved machine is now available, and the firm is considering making a switch. The firm's marginal tax rate is 40% and the capital gain tax is 15%. What are the after-tax cash flow effect of selling the old drilling machine if it can be sold for the following prices? a) $15,000 b) $5,000 c) $26,000 d) $32,000 Q4: Beninga Company has sales of $200 million and total expenses (excluding depreciation) of $130 million. Straight-line depreciation on the company's assets is $15 million, and the maximum accelerated depreciation allowed by law is $25 million. Assume that all taxable income is taxed at 40%. Assume also that net working capital remains constant. a) Calculate the Beninga's after-tax operating cash flows using straight-line depreciation. b) Calculate the Beninga’s after-tax operating cash flows using accelerated depreciation. c) Explain the difference between the two net cash flow estimates.