The after-tax analysis for a $60,000 investment with associated gross income minus expenses (GI – OE) is shown below for the first 2 years only. If the effective tax rate is 40%, the values for depreciation D, taxable income TI, and taxes for year 1 are closest to:
 FIGURE 1.png)
(choose one)
(a) D = $ 5,000, TI = $25,000, taxes = $10,000
(b) D = $30,000, TI = $30,000, taxes = $4,000
(c) D = $20,000, TI = $50,000, taxes = $20,000
(d) D = $20,000, TI = $10,000, taxes = $4,000
CFAT = GI – OE – TI(Te)
26,000 = 30,000 – TI(0.40)
TI = (30,000 – 26,000)/0.40 = $10,000
Taxes = TI(Te) = 10,000(0.40) = $4000
TI = (GI - OE – D)
10,000 = (30,000 – D)
D = $20,000
Answer is (d) D = $20,000, TI = $10,000, taxes = $4,000
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