Freedom Corporation acquired a fixed asset for $120,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 7% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.)
Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years’-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges.
2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges.
Homework Answers
Part 1
|
Depreciation method |
Difference |
|||||
|
Year |
SYD |
SL |
Amount |
Tax effect |
PV Factor @ 11% |
PV of Tax Effect |
|
1 |
48000 |
30000 |
18000 |
7200 |
0.9346 |
6729 |
|
2 |
36000 |
30000 |
6000 |
2400 |
0.8734 |
2096 |
|
3 |
24000 |
30000 |
(6000) |
-2400 |
0.8163 |
-1959 |
|
4 |
12000 |
30000 |
(18000) |
-7200 |
0.7629 |
-5493 |
|
$1373 |
SYD
Year 1 = 120000*4/10 = 48000
Year 2 = 120000*3/10 = 36000
Year 3 = 120000*2/10 = 24000
Year 4 = 120000*1/10 = 12000
SL
Depreciation = 120000/4 = 30000
Part 2
|
Depreciation method |
Difference |
|||||
|
Year |
Double declining method |
SL |
Amount |
Tax effect |
PV Factor @ 11% |
PV of Tax Effect |
|
1 |
60000 |
30000 |
30000 |
12000 |
0.9346 |
11215 |
|
2 |
30000 |
30000 |
0 |
0 |
0.8734 |
0 |
|
3 |
15000 |
30000 |
(15000) |
-6000 |
0.8163 |
-4898 |
|
4 |
15000 |
30000 |
(15000) |
-6000 |
0.7629 |
-4577 |
|
$1740 |
Double declining method
Deprecation rate = ¼*2 = 50%
Year 1 =120000*50% = 60000
Year 2 = 60000*50% = 30000
Year 3 = 30000*50% = 15000
Year 4 = 15000
SL
Depreciation = 120000/4 = 30000
Part 3
|
Depreciation method |
Difference |
|||||
|
Year |
MACRS |
SL |
Amount |
Tax effect |
PV Factor @ 11% |
PV of Tax Effect |
|
1 |
39996 |
30000 |
9996 |
3998 |
0.9346 |
3737 |
|
2 |
53340 |
30000 |
23340 |
9336 |
0.8734 |
8154 |
|
3 |
17772 |
30000 |
-12228 |
-4891 |
0.8163 |
-3993 |
|
4 |
8892 |
30000 |
-21108 |
-8443 |
0.7629 |
-6441 |
|
$1457 |
MACRS
Year 1 =120000*33.33% = 39996
Year 2 = 120000*44.45% = 53340
Year 3 = 120000*14.81% = 17772
Year 4 = 120000*7.41% = 8892
SL
Depreciation = 120000/4 = 30000
Add Answer to:
Freedom Corporation acquired a fixed asset for $120,000. Its
estimated life at time of purchase was...
Check my work Freedom Corporation acquired a fixed asset for $200,000. Its estimated life at time...
Check my work Freedom Corporation acquired a fixed asset for $200,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 11% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.) 0.25 points Skipped Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years’-digits (SYD) method rather than the straight-line (SLN)...
Check my work Freedom Corporation acquired a fixed asset for $200,000. Its estimated life at time...
Check my work Freedom Corporation acquired a fixed asset for $200,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 11% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C TABLE 2.) 0.25 points eBook Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'-digits (SYD) method rather than the straight-line (SLN)...
Exercise 12-29 Value of Accelerated Depreciation: Sum-of-Years'-Digits (SYD) and Double Declining. Balance (DDB) Methods (LO 12-3)...
Exercise 12-29 Value of Accelerated Depreciation: Sum-of-Years'-Digits (SYD) and Double Declining. Balance (DDB) Methods (LO 12-3) Freedom Corporation acquired a fixed asset for $100,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 8% and an income tax rate of 40%. (Use Exhibit 124. Appendix C. TABLE 1 and Appendix C. TABLE 2) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation...
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signment Saved Help Save & Exit Submit Check my work Freedom Corporation acquired a fixed asset for $180,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 10% and an income tax rate of 40% (Use Exhibit 12.4. Appendix C. TABLE1 and Appendix C. TABLE 2) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years-digits (SYD) method rather than...
Freedom Corporation acquired a fixed asset for $220,000. Its estimated life at time of purchase was...
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eEgg is considering the purchase of a new distributed network computer system to help handle its...
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $40,000 to purchase and install and $29,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $50,000 per year. The firm’s cost of capital (discount rate) is 9%. Required: 1. What is the net present value (NPV) of the proposed investment...
eEgg is considering the purchase of a new distributed network computer system to help handle its...
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $55,000 to purchase and install and $35,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $63,000 per year. The firm’s cost of capital (discount rate) is 7%. Required: 1. What is the net present value (NPV) of the proposed investment...
eEgg is considering the purchase of a new distributed network computer system to help handle its...
eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $40,000 to purchase and install and $29,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $50,000 per year. The firm’s cost of capital (discount rate) is 9%. Required: 1. What is the net present value (NPV) of the proposed investment...
eEgg is considering the purchase of a new distributed network computer system to help handle its...
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Check my work Freedom Corporation acquired a fixed asset for $200,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 11% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.) 0.25 points Skipped Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years’-digits (SYD) method rather than the straight-line (SLN)...
Check my work Freedom Corporation acquired a fixed asset for $200,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 11% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C TABLE 2.) 0.25 points eBook Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'-digits (SYD) method rather than the straight-line (SLN)...
Exercise 12-29 Value of Accelerated Depreciation: Sum-of-Years'-Digits (SYD) and Double Declining. Balance (DDB) Methods (LO 12-3) Freedom Corporation acquired a fixed asset for $100,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 8% and an income tax rate of 40%. (Use Exhibit 124. Appendix C. TABLE 1 and Appendix C. TABLE 2) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation...
signment Saved Help Save & Exit Submit Check my work Freedom Corporation acquired a fixed asset for $180,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 10% and an income tax rate of 40% (Use Exhibit 12.4. Appendix C. TABLE1 and Appendix C. TABLE 2) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years-digits (SYD) method rather than...
Freedom Corporation acquired a fixed asset for $220,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 7% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.) TABLE2 Present Value of Annuity of $1 Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 20% 25% 30% 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901...
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