Ajax Manufacturing Financial Analysis
What is the annual depreciation charge for the equipment?
(a) If the machine would have a salvage value of $6,600 at EOY 20, how much could Ajax charge annually to depreciation of this equipment? Ajax uses straight-line depreciation.
What is the book value of the machine at EOY 3?
(b) What is the book value of the machine at EOY 3?
How much tax would Ajax owe for this year?
(c) Ajax Manufacturing earns a net profit before tax of $28,800,000. How much tax would Ajax owe for this year?
Answers:
(a) The annual depreciation charge for the equipment is $3,805.
(b) The book value of the machine at EOY 3 is $58,285.
(c) The amount of tax owed by Ajax Manufacturing depends on the applicable tax rate and can be calculated by multiplying the taxable income by the tax rate.
To calculate the annual depreciation of the equipment, we need to subtract the salvage value from the initial cost and installation cost. In this case, the total cost is $65,000 + $4,700 = $69,700, and the salvage value is $6,600. So the annual depreciation charge would be ($69,700 - $6,600) / 20 = $3,805.
To find the book value of the machine at EOY 3, we need to deduct the accumulated depreciation from the initial cost. Since this is a straight-line depreciation, the accumulated depreciation per year would be $3,805. Therefore, the book value at EOY 3 would be $69,700 - (3 * $3,805) = $58,285.
To calculate the tax owed by Ajax Manufacturing, we need to find the tax rate and apply it to the net profit before tax. Since the taxable income is $28,800,000, we need to determine the tax rate based on the applicable tax bracket. Once the tax rate is known, the tax owed can be calculated as the taxable income multiplied by the tax rate.