Please Explain

Since the example I had is a long, I’m just going to summarize it. ----------------------------------------------------------------------- Company is trying to replace existing printer that was purchased 15 yrs ago for $15,000. Straight line depreciation for 15 yrs ($1,000 Dep per year). New Printer will cost $100,000. Will reduce operating costs from $14,000 to $8,000. This reduction will increase before tax-profits to rise to $6,000. New printer depreciation is $7,920 (under MARS system) for year 1. Tax Rate = 40%. Year 1 cash flow is then calculated as follows: (6,000)(1-0.4) + (7,920-1,000)(0.4) = $6,368 ----------------------------------------------------------------------- Compare the above example to another one. ----------------------------------------------------------------------- Company is trying to replace existing printer that was purchase 3 years ago for $50,000. Straight line depreciation for 5 yrs ($10,000 Dep per year). New Printer will cost $100,000. Will increase revenue by $40,000 and also increase operating cost by $5,000 per year. New printer depreciation is $33,000 (under MARS system) for year 1. Tax Rate = 35%. Year 1 cash flow is then calculated as follows: (35,000)(1-0.35) + (33,000-10,000)(0.35) = $30,800 ----------------------------------------------------------------------- The calculation I used for the 2nd example to get the same answer is as follows: Revenue - $40,000 - $5,000 (cost) ------------------ = $35,000 - $23,000 (New Dep of $33,000 - Old Dep of $10,000) ------------- = $12,000 * 0.65 (Tax Rate of 35%) -------------- = $7,800 + $23,000 (New Dep of $33,000 - Old Dep of $10,000) ------------- = $30,800 ----------- I tried to use this same type of calculation for the 1st example…, but I’m not getting the right answer. Anyone can give it a try or explain why I’m not getting the right answer? Also, can anyone explain why the book is taxing the depreciation amount in their calculation for both examples?

Ok, for the first example the year 1 cashflow is: +6000 Revenue -6920 Depreciation ----------------------- -920(1-.4) +6920 Depreciation -------- 6368 = same answer.

Snap! Dude, I was not taxing the negative income cuz I thought why tax something that’s negative. haha! Thanks!

^This what i thought in the begining ,but actually taxing the -ve represents a decrease to this loss ,which is negative …