# CMA Study Group

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## Capital budgeting

• #### 1.  Capital budgeting

Posted 15 days ago
Skyline Industries is analyzing a capital investment project. The new equipment is required by the project and will cost \$350,000 with \$25,000 installation and transportation costs. A five-year MACRS depreciation schedule (20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%) with the half-year convention will be employed. Existing equipment, with a book value of \$200,000 and an estimated market value of \$100,000, will be sold immediately after installation of the new equipment. Annual incremental pre-tax cash inflows are estimated at \$175,000. Skyline's effective income tax rate is 40%. After-tax operating cash flow for the first year of the project would amount to

a. \$105,000.
b. \$133,000.
c. \$135,000.
d. \$175,000.

Can anyone tell me how to calculate the depreciation tax shield in this one? Ans is C

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Riya Samuel
Student
MUMBAI
India
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• #### 2.  RE: Capital budgeting

Posted 15 days ago
Calculate the depreciation tax shield as depreciation amount (1- tax rate), \$375,000* 20% (1 - 40%)=\$30,000

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Deon Denton
Accountant
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• #### 3.  RE: Capital budgeting

Posted 6 days ago
Tax shield =Depreciation  x tax rate

• #### 4.  RE: Capital budgeting

Posted 15 days ago
175000*(1-40/100)+((350000+25000)*20/100)*40/100=135000

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MAHESH CHANDA
Student
ANANTAPURAM
India
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