D Assignment 1: Chapter ?e Rockyford Cornpany M × ? ? ezto.mheducation.com/hm.tp

Question

D Assignment 1: Chapter ?e Rockyford Cornpany M × ? ? ezto.mheducation.com/hm.tpx Question 1 (of 4) Save & Exit | | Submit Freedom Corporation acquired a fixed asset for $170,000. Its estimated life at time of purchase was four 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.) Required 1. What is the present value of the tax benefits resulting from calculating depreciation using the sum-of-the years'-digits method as opposed to the straight-line method on this asset? (Round your answers to nearest whole dollar. Negative amounts should be indicated by a minus sign.) Difference Depreciation Method SYD PV of Tax Effect Year S-L Amount Tax Effect IMG 20180615 jpg ???? 16:18 ?+] 2018/6/1.5

Explanation / Answer

Depreciation Method Difference PV Factor @ 11% PV of Tax effect SYD SL Amount Tax Effect 1 68000 42500 25500 10200 0.901 9190 2 51000 42500 8500 3400 0.812 2761 3 34000 42500 -8500 -3400 0.731 -2485 4 17000 42500 -25500 -10200 0.659 -6722 170000 170000 0 2744 SYD 4+3+2+1 = 10 170000/10*4,3,2,1 SL 170000/4 42500 Depreciation Method Difference PV Factor @ 11% PV of Tax effect DDB SL Amount Tax Effect 1 85000 42500 42500 17000 0.901 15317 2 42500 42500 0 0 0.812 0 3 21250 42500 -21250 -8500 0.731 -6214 4 21250 42500 -21250 -8500 0.659 -5602 170000 170000 0 3502 DDB Yr 1 170000/4*2 85000 Yr 2 (170000-85000)/4*2 42500 Yr 3 (170000-85000-42500)/4*2 21250 Yr 4 (170000-85000-42500-21250) 21250 Depreciation Method Difference PV Factor @ 11% PV of Tax effect MACRS SL Amount Tax Effect 1 56661 42500 14161 5664 0.901 5104 2 75565 42500 33065 13226 0.812 10740 3 25177 42500 -17323 -6929 0.731 -5065 4 12597 42500 -29903 -11961 0.659 -7882 170000 170000 0 2895 Year 1 33.33% Yr 2 44.45% Yr 3 14.81% Yr 4 7.41%

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