Question

company plans to use straight-line depreciation b. What is the annual depreciation tax suppose Markov will use the MACRS depreciation method for the five year ite of the property . Calculate the depreciation tax shield each year for ths equipment under this d. If a. What is the annual depreciation expense associated with this equipment? b. What is the annual depreciaion ax shiela G Rather than sraigh-ne depreciation, suppose Markov wil use the MACRS depreciation method for the five-year lie of the property Calcuiate the depreciation tax shield each year for this equpment under this accmciastion 2 3

Please answer all from a to e. Thanks

Answer 1

Reqa:
Cost of asset			16300000
Divide;Life			5
Annual depreciation			3260000
Annual depreciation			3.26	Million
Req b:
Annual depreciation			3260000
Tax rate			40%
Tax shield on dep			1304000
Tax shield on dep			1.304	Million
Req c:
Year-1 Depreciation		(16.30*20%)		3.26	Million
Year-2 Depreciation		(16.30*32%)		5.216	Million
Year -3 Depreciation		(16.30*19.20%)		3.1296	Million
Year-4 Depreciation		(16.30*11.52%)		1.878	Million
Year-5 Depreciation		(16.30*11.52%)		1.878	Million
Year -6 Depreciation		(16.30*5.76%)		0.9388	Million
Req d: MACRS method will be more preferable as it gives higher tax shiel on dep rather thana SLM.
Req e:
SLM method is prefereble if the taxx rate has been increased substantially