Englehard purchases a slurry-based separator for the mining of the clay that cos

Question

Englehard purchases a slurry-based separator for the mining of the clay that costs $550,000 and has an estimated useful life of 10 years, a MACRS-GDS property class of 7 years, and an estimated salvage value of $90,000 after 10 years. It was financed using a $185,000 down payment and a loan of $365,000 over a period of 5 years with interest at 10%. Loan payments are made in equal annual amounts (principal plus interest) over the 5 years.

a. What is the amount of the MACRS-GDS depreciation taken in the 3rd year?
Depreciation = $

b. What is the book value at the end of the 3rd year?
Book value = $

c. Returning to the original situation, what is the amount of the MACRS-GDS depreciation taken in the 3rd year if the separator is also sold during the 3rd year?
Depreciation = $

Use depreciation percentages to 2 decimal places. Round final answers to whole dollar. Tolerance is +/- 50.

Explanation / Answer

The depreciation rates for MACRS 7 Year Class property are 14.29%,24.49%,17.49%,12.49%, 8.93%, 8..92%, 8.93% and 4.46% for years 1 to 8. a) Amount of depreciation in the 3rd year = 550000*17.49% = $       96,195 Answer b) Depreciation for years 1 to 3: Year 1 = 550000*14.29% = 78595 Year 2 = 550000*24.49% = 134695 Year 3 = 550000*17.49% = 96195 Total depreciation 309485 Book value = Cost-Total depreciation = 550000-309485 = $     240,515 Answer c) Depreciation in the 3rd year if the separator is sold in that year = 50% of the eligible depreciation = 550000*17.49%*50% = $       48,098 Answer

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