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Under consideration is financing the purchase of a machine using a 3-year loan paid in years...

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Finance

Under consideration is financing the purchase of a machine usinga 3-year loan paid in years 1 through 3 with a down payment of 40percent and interest rate of 8.0%. An analysis of the 60,000machine paid in full at time of purchase a forecast of taxableincome (not taxes) which included depreciation using 3 year MACRSpercentages gave the results below.

Year1234
Forecasted Taxable Income22,00026,0008,0004,000

Calculate and report the new estimate of the taxable income (nottaxes) in years 1 through 4 with this loan.

Answer & Explanation Solved by verified expert
3.6 Ratings (605 Votes)

Loan amount = (60000-(60000*40%)) 36000
Interest rate annual= 8%
Time in years (n)= 3

Equal annual payments for loan formula = P* i *((1+i)^n)/((1+i)^n-1)

36000*0.08*((1+0.08)^3)/(((1+0.08)^3)-1)
$13,969.21

Loan amortization table
Year Beginning balance Payment Interest @8% Loan Red. Ending balance
(Beg. Bal, *8%) (Payment - interest)

(Beg. Balance - Loan red.)
1 36000.00 13969.21 2880.00 11089.21 24910.79
2 24910.79 13969.21 1992.86 11976.34 12934.45
3 12934.45 13969.21 1034.76 12934.45 0.00

Calculation of Forecasted taxable income

Interest will be reduced from income given as already all costs and depreciation has been deducted.
Year 1 2 3 4
Taxable income before interest 22000.00 26000.00 8000.00 4000.00
Less : interest -2880.00 -1992.86 -1034.76 0.00
Estimated taxable income 19120.00 24007.14 6965.24 4000.00

So, Forecasted taxable income is
year 1 $19,120.00
year 2 $24,007.14
year 3 $6,965.24
year 4 $4,000.00

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Transcribed Image Text

Under consideration is financing the purchase of a machine usinga 3-year loan paid in years 1 through 3 with a down payment of 40percent and interest rate of 8.0%. An analysis of the 60,000machine paid in full at time of purchase a forecast of taxableincome (not taxes) which included depreciation using 3 year MACRSpercentages gave the results below.Year1234Forecasted Taxable Income22,00026,0008,0004,000Calculate and report the new estimate of the taxable income (nottaxes) in years 1 through 4 with this loan.

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