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.)

The firm uses the accelerated depreciation schedule specified by MACRS

             

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

           

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.

  

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

Explanation / Answer

1) Depreciation rate at 3-year property class under MACRS and the half-year convention:

2)

Present Value:

Year Initial Cost Depreciation rate (3-year property class under MACRS &the half-year convention) Depreciation Balance 1 $170000 33.33% $56661 113339 2 113339 44.45% 50379 62960 3 62960 14.81% 9325 53635

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