New Economy Transport (A) p. 182The New Economy Transport Company (NETCO) was formed in 1955 to carry cargo and passengers between ports in the Pacific Northwest and Alaska. By 2008 its fleet had grown to four vessels, including a small dry-cargo vessel, the Vital Spark. The Vital Spark is 25 years old and badly in need of an overhaul. Peter Handy, the finance director, has just been presented with a proposal that would require the following expenditures: Mr. Handy believes that all these outlays could be depreciated for tax purposes in the seven-year MACRS class. NETCO 's chief engineer, McPhail, estimates the postoverhaul operating costs as follows: These costs generally increase with inflation, which is …show more content…
This is a nominal, not a real, rate. NETCO 's tax rate is 35%. QUESTION 1. Calculate the NPV of the proposed overhaul of the Vital Spark, with and without the new engine and control system. To do the calculation, you will have to prepare a spreadsheet table showing all costs after taxes over the vessel 's remaining economic life. Take special care with your assumptions about depreciation tax shields and inflation. New Economy Transport (B) There is no question that the Vital Spark needs an overhaul soon. However, Mr. Handy feels it unwise to proceed without also considering the purchase of a new vessel. Cohn and Doyle, Inc., a Wisconsin shipyard, has approached NETCO with a design incorporating a Kort nozzle, extensively automated navigation and power control systems, and much more comfortable accommodations for the crew. Estimated annual operating costs of the new vessel are: The crew would require additional training to handle the new vessel 's more complex and sophisticated equipment. Training would probably cost $50,000 next year. The estimated operating costs for the new vessel assume that it would be operated in the same way as the Vital Spark. However, the new vessel should be able to handle a larger load on some routes, which could generate additional revenues, net of additional out-of-pocket costs, of as much as $100,000 per year. Moreover, a new vessel would have a useful service life of 20 years or more. Cohn and
During my tenure with NTB, I have undertaken complex engineering and project work within the boundaries of the Navy Technical Regulatory Framework (NTRF) to successfully deliver technical products and services for the acquisition and sustainment of Minor War Vessels (MWV) for the RAN. In the naval context, these includes specification and validation of compliance with Platform System Requirements for the current and future ships through the development of material specification for maritime capability certification assurance process and provide technical naval system advice to naval community that is accurate, on time and pragmatic.
f) Yes, Jane can depreciate the vehicle and her jewelry making machine. The equipment can be depreciated with MACRS or
Depreciation is the loss in value of an asset / building over time due to wear and tear, physical deterioration and age. Depreciation is treated as an expense and is a line item on your income statement but must be applied only to the building and not the land (since land does not wear out over time). You will be able to depreciate the building over a period of 39 years using the Modified Accelerated Cost Recovery System (MACRS). IRS Publication 946 contains the rules and guidelines governing depreciation of non-residential or commercial property.
By the early 1800s, the US was quickly growing, but the only ways of transportation were by on foot, on animals, or by ship. By the mid 1800’s, ways of transportation drastically changed, greatly increasing mobility throughout America. First built were national roads, then the production of lengthy canals, and finally the railroad. These new forms of transportation has made it faster and more efficient to move materials to buyers and markets all around the
5) Herelt Inc., a calendar year taxpayer, purchased equipment for $383,600 and placed it in service on April 1, 2014. The equipment was seven-year recovery property, and Herelt used the half-year convention to compute MACRS depreciation. Compute Herelt’s MACRS depreciation for 2016 if it disposes of the equipment on February 9, 2016. (part c)
Throughout the 1800’s, commerce and the need for trade was at a rapidly growing pace, as it would be in the years to come, and the dawn of a new century was beginning to bloom. Being only a few decades after the Revolutionary War (the turning-stone in American history,) tensions were tight between both Britain and America. American and British businessmen and leaders of shareholders were pushing to transport and receive goods from the Pacific and Atlantic Oceans as quickly as possible. As the situation was beginning to arise into the minds of the governments, a need for an alternative route that was both a faster and more efficient approach to delivering items to foreign countries was escalating swiftly. Occurring throughout the course
The type of depreciation method the Target Corporation uses is a straight-line method. Property and equipment is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. “Target amortizes leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably assured at the date the leasehold improvements are acquired” (Stock Analysis, n.d.).
There are two options for engines will be installed on buses. And so are the warranties. The decision should be made according to engines’ quality, effectiveness, etc. But to investors, cost is the main factor. In this case, Detroit engine has an installation cost of $20,000 and a warranty of $1,000 each year for 5 years; the cost of installation of Marcus engine is $2,000 less but the warranty is $1,500 per year. To figure out the cost I calculated the NPVs of each year for 20 years. The NPVs of the warranties for each bus are same at the year it been produced. For example, the warranty of a Detroit engine has a NPV of $4,276 in the year it been produced. (This method is coming from Mr. Hasse. I used to combine the warranty for each year and use those numbers in calculation.)
The Modified Accelerated Cost Recovery System is another model of depreiciation. The MACRS is the only approved method to use in the US. Using this method, the depreciation always equals 0. Properly is categorized and then placed in classes. These classes normally determine recovery periods, leaving a year longer to recover. With this method, the rates are tabulated. By using the regular MACRS, the recovery periods will be longer. Straight line can be used in combination with MACRS.
The City of Estiville uses Capital Improvement funds to purchase fire apparatus for the Estiville Fire Department. Due to the large increase of mid-rise hotels, the Estiville Mills Mall, and multiple apartment complexes being built, the city has determined the need for a Quint Combination Pumper on the south side of the main thoroughfare. ISO recently recommended the need for an engine in this area and this apparatus meets those needs due to its dual purpose of being used as an engine and an aerial device. The city will propose a bond during the October City of Estiville Council Meeting for a total of $1,000,000.00, which will include initial issue of equipment for the apparatus
Inc. Corp. is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint:
There will be a total of 15 managers participating in this training exercise and each one will have things such as hardware resources, food, flight expenditures as well as trainers and consultants to help them along the way. This will leave nothing left to chance and provide all available resources to complete the training in a fast and efficient way. While many of these figures are close estimates there will be unused expenses toward the end to allow for fourth quarter expenses to be provided for if need be. The three month project will account for all stages of the training process from beginning to end for estimated grand
*Note: the building and the equipment fall into the modified accelerated cost recovery system (MACRS) five-year class for tax depreciation purposes; in reality, the building has to be depreciated over a longer period than the equipment
Every office has a work horse; something such as a machine that dependably performs under heavy or prolonged use, but how do you maintain the best performance from your team’s most important asset? The 32-foot Transportable Port Security Boats for the Maritime Security Detachment of Joint Task Force Guantanamo, endure continuous Anti-Terrorism Force Protection patrols for the bay’s southern and northern boundaries, protecting and securing it from the unexpected; but without the MARSEC DET’s diligent team of skilled and attentive engineers, those work horses would reach a quick demise. These JTF GTMO Troopers recognize important mission oriented values to keep their boats running smoothly, such as cross-training skills and design innovation,
As with every endeavor in human history, the need for improvement have always been important. The same applies to the document and procedures of freight transportation involving the use of INCOTERMS. Perhaps, it appears that the list of incoterms in used today are achieving the purpose for which they were designed. However, it also offers some level of confusion as well.