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Problem 1: Capital Spending and depreciation Skunk Boats, Inc. has just installed a new hydraulic lift system, which is being categorized as a 5-year class- life asset under MACRS. The total purchase cost plus installation amounted to $750,0oo. While Skunk Boats has always used straight-line depreciation in the past, their accountant, Tom Sawyer, is pushing the owner to use the MACRS rates this year. However, the owner seems to think that it really doesnt matter since total depreciation under each method will still sum to $750,000 and be spread over 6 years-i.e. with the application of the half-year convention. Do you agree with the owner? Please explain by making the appropriate calculations. (Note: Skunk Boats uses a 10% hurdle rate and its marginal tax rate is 30%)
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