Trenton Fabrication Company purchased industrial tools costing $170,000, which f

Question

Trenton Fabrication Company purchased industrial tools costing $170,000, which fall in the 3-year property class under MACRS.

Use Appendix A and Exhibit 16-9 for your reference.

(Use appropriate factor(s) from the tables provided.). (Round your final answers to the nearest dollar amount.)

Apendix A is a Present Value Table. Exhibit 16-9 is a MACRS table

1. Prepare a schedule of depreciation deductions assuming:

a. The firm uses the accelerated depreciation schedule specified by MACRS Year Accelerated Depreciation 1 2 3 4

b. The firm uses the optional straight-line depreciation method and the half-year convention.

Year Straight-Line Depreciation 1 2 3 4 2.

Calculate the present value of the depreciation tax shield under each depreciation method listed in part

(1). Trenton Fabrication Company’s after-tax hurdle rate is 12 percent, and the firm’s tax rate is 30 percent.

Present Value of Depreciation Tax Shield Under MACRS

Accelerated depreciation Under MACRS Straight-line depreciation

Explanation / Answer

a. Depreciation schedule if the firm uses the accelerated depreciation schedule specified by MACRS:

As the asset falls under the 3-year property class under MACRS, the straight line depreciation is 33.33% and the double declining accelerated depreciation rate is 66.67%.

a. Depreciation schedule if the firm uses the optional straight-line depreciation method and the half-year convention, under the 3-year property class under MACRS:

$95733

Present Value of Depreciation Tax Shield Under MACRS Accelerated depreciation 101001 Under MACRS Straight-line depreciation 95733

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