Question

i have doubt that it is given macrs depreciation for 3 years but rates are given for 4 years please clear my doubt thanks in advance

The president of real-time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer price is $50,000 and it falls into MACRS-3 year class. The purchase of the computer would require an increase in spare parts inventory of $3,000. Account payables will also increase by $2,000. The computer would increase the firms before - tax revenue by $20,000 per year but it would also increase the operating cost by $5,000 per year. The annual interest expense is $500 per year. The computer is expected to be used for 3 years and then be sold for $35,000. The firm's marginal tax rate is 20%, and the projects cost of capital is 12% MACRS Depreciation Rates Year 1: 33% Year 2: 45% Year 3: 15% Year 4:7% what is the operating cash flow in year 3?

Answer 1

The MACRS depreciation schedule simplifies the depreciation calculations for assets placed in service at different times during the year by using a “half-year” convention. This means the depreciation schedule treats all property as placed in service or disposed of as placed in service or disposed of at the midpoint of the year. This is why there is an extra year for each depreciation schedule (e.g. there are six years of depreciation instead of five for five year property).

This prevents a taxpayer from having to keep track of each date the asset was placed in service.