Engineering Board Exam Reviewer · Income Taxes and After-Tax Analysis · hard

An asset costing P600,000 is depreciated over 5 years with the sum-of-years-digit method (no salvage value). At a 30% tax rate and 10% interest, find the present worth of the tax savings from depreciation.

  1. P145,105.59
  2. P136,468.32
  3. P180,000
  4. P159,616.15

Answer

A. P145,105.59

Solution

SYD charges are 515, 415, 315, 215, 115 of 600,000: 200,000, 160,000, 120,000, 80,000, 40,000. Tax savings (30%): 60,000, 48,000, 36,000, 24,000, 12,000. Discounting at 10% gives PW=P145,105.59.

More Income Taxes and After-Tax Analysis questions

  1. A project has a before-tax cash flow of P500,000 and depreciation of P200,000. At a 35% tax rate, find the after-tax cash flow.
  2. A bond pays 12% interest and the investor pays a 30% tax on the interest. Find the after-tax rate of return.
  3. A firm has revenue of P2,000,000, operating expenses of P900,000, and depreciation of P300,000. At a 30% tax rate, find the income tax.

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