MBA Accounting and Managerial Finance Essay Example | Topics and Well Written Essays - 3500 words

MBA Accounting and Managerial Finance - Essay Example 2. The investment related to machinery can be depreciated for tax purposes on the 5-year MACRS schedule while that of related to refurbishing of plant can be depreciated on 10-year MACRS schedule. The residual value of machine at the end of 5 years is expected to be zero. 3. The following income statement has been fore casted by the sales staff of the Sheetbend & Halyard Inc. which appeared to be correct to Mr. Tar except that the book depreciation was used, not the tax depreciation. In the meantime, Sheetbend & Halyard Inc. received a firm offer from Maine real estate developer to purchase Pleasantboro land and plant for $1.5 million in cash. The plant is fully depreciated while land’s cost is $10,000. On the basis of the information available, the CFO Mr. Tar was asked to advise whether the company should bid for the proposal of U.S. Navy. If the proposal is bid and accepted, the company shall receive cash flows for continuous succeeding 5 years. The cash flows are confirmed under the circumstances. However, if such bid is not made, the company may sell the Pleasantboro land and plant immediately. The company will also not need to make additional investment of $1.5 million for the purchase of machinery and refurbishing of plant. The projected Income statement prepared by the sales department is correct in the opinion of Mr. Tar. However, the tax depreciated should be accounted for in the Income statement in place of book depreciation. Using the MACRS depreciation schedule on the 10-years and 5-years for plant and machinery respectively, the following depreciation schedule for future years was made: On the basis of the depreciation calculated as per MACRS schedule and the data prepared by the sales department staff, the following forecasted Income statement for the navy duffel canvas project was prepared by Mr. Tar: In the forecasted income