Pressco

In: Business and Management

Submitted By illu2007
Words 318
Pages 2
Areas of Consideration ï Cost-reduction opportunity of replacing old equipments. ï Elimination of investment tax credit for new equipment due to the new taxlegislation. ï Extended depreciation lives for new equipment under the new tax regulation. ï Reduction of corporate tax rate from 46% to 34% subject to the new taxregulation. ï Economic uncertainty on long-term capital investments.
Alternative Courses of Action
1.
Buy the new machine yet no new legislation is enacted.
Advantages
? The company will continue to use a 5 year ACRS depreciationmodel with higher depreciation expense.
?
Efficiency in operation due to new equipments.Disadvantage
?
The company will retain all tax credits due to using 5 yr. ACRSdepreciation model in equipments with 7 yr useful life.2
. Buy the new machine when the new tax proposal is enacted and bind the contract soon enough to be grandfathered or before the enactment of thelaw.
Advantages
? This will allow the company to receive an investment tax creditthat will reduce the companyís taxes.
?
The company will continue to use a 5 year ACRS depreciationmodel with higher depreciation expense.
?
Tax rate would reduce to 34%.
?
Efficiency in operation due to new equipments.Disadvantage
?
Depreciation life of the equipment will not be extended. 3
. Buy the new machine when the new tax proposal is enacted but do not bind thecontract in time to be grandfathered or after the enactment of the law. Advantages
?
Efficiency in operation due to new equipments.
?
Depreciation life of the equipment will be extended by 2 years.
?
Tax rate would reduce to 34%.Disadvantages
?
MACRS model will be used which generates a lower depreciationexpense than the ACRS model.
?
The company will not be able to receive the investment tax creditdue to binding the contract after the law was enacted.
Recommendation…...

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