The company has purchased equipment which cost $25 million with the renovation and installation cost is $3 million and they have to pay the import duty cost which is 8% of the purchase price so the import duty is $2 million; thus, the total money the company has spent for the new PPE is $30 million. The PPE has the 8% depreciation which is last twelve economic years. Hence, each year the profit of the company will deduct an amount of the depreciation expense that is $2.4 million; because of the deduction of the profit so there will create a tax shield for the company when the company pay less tax because of the deduct in their profit and that is $720,000. After 8 years, the book value of the equipment is $10.8 million and the company want to sell it for $6 million, so, in the 8 years there will be a loss on selling equipment for $4.8 million and create a tax benefit which is $1.44 million (from table 1 and table 2).
There are costs that the company profit have been reduce such as the opportunity cost for transferring the other production line that the employee can earn $5000 per month, so there will be $60,000 in the opportunity cost deduct on the company …show more content…
The product price is also changes while the price in the beginning is $300 for a product but after 5 years it’ll decrease by 10% which make the price decline to $270 for one product. From all of that information, the total revenue is calculated by the multiply of the quantity and the selling price (table 2). But, the revenue will be less by the variable operating cost which is 50% of the total revenue and the fixed operating cost which is $600,000 for a year (excluding depreciation) and it’ll come up with the taxable income and there will be a tax deduction which is 30% of the taxable
There are costs that the company profit have been reduce such as the opportunity cost for transferring the other production line that the employee can earn $5000 per month, so there will be $60,000 in the opportunity cost deduct on the company …show more content…
The product price is also changes while the price in the beginning is $300 for a product but after 5 years it’ll decrease by 10% which make the price decline to $270 for one product. From all of that information, the total revenue is calculated by the multiply of the quantity and the selling price (table 2). But, the revenue will be less by the variable operating cost which is 50% of the total revenue and the fixed operating cost which is $600,000 for a year (excluding depreciation) and it’ll come up with the taxable income and there will be a tax deduction which is 30% of the taxable