A proposed power-saving equipment has a purchase price of $520,000 and installation cost of $60,000. The equipment will be used in a four-year project but is classified as five-year MACRS property for tax purposes. The equipment is expected to save $280,000 before taxes per year in energy costs, and it will have a salvage value of $60,000 at the end of the project. To decide on the feasibility of the investment, the managers have ordered a series of tests to determine whether the proposed equipment will realize the required costs savings or not for a total cost of $18,000. The required rate of return on the equipment is 14% and it is expected to increase working capital by $45,000 at the beginning of the project. The tax rate is 35 percent and the MACRS depreciation schedule is as follows: Year
1
2
3
4
5
6
MACRS
20.00%
32.00%
19.20%
11.52%
11.52%
5.76%
The total initial investment is (total cash flows in Year 0).
1)-$520,000
2)-$535,000
3)-$580,000
4)-$625,000

The following selected circumstances relate to pending lawsuits for erismus, inc. erismus’s fiscal year ends on december 31. financial statements are issued in march 2019. erismus prepares its financial statements according to u. s. gaap. required: indicate the amount erismus would record as an asset, liability, or not accrued in the following circumstances. 1. erismus is defending against a lawsuit. erismus's management believes the company has a slightly worse than 50/50 chance of eventually prevailing in court, and that if it loses, the judgment will be $1,000,000. 2. erismus is defending against a lawsuit. erismus's management believes it is probable that the company will lose in court. if it loses, management believes that damages could fall anywhere in the range of $2,000,000 to $4,000,000, with any damage in that range equally likely. 3. erismus is defending against a lawsuit. erismus's management believes it is probable that the company will lose in court. if it loses, management believes that damages will eventually be $5,000,000, with a present value of $3,500,000. 4. erismus is a plaintiff in a lawsuit. erismus's management believes it is probable that the company eventually will prevail in court, and that if it prevails, the judgment will be $1,000,000. 5. erismus is a plaintiff in a lawsuit. erismus’s management believes it is virtually certain that the company eventually will prevail in court, and that if it prevails, the judgment will be $500,000.