Pavlovich Instruments, Inc., a maker of precision telescopes, expects to report

Question

Pavlovich Instruments, Inc., a maker of precision telescopes, expects to report pre-tax income of $430,000 this year. The company%u2019s financial manager is considering the timing of a purchase of new computerized lens grinders. The grinders will have an installed cost of $80,000 and a cost recovery period of 5 years. They will be depreciated using the MACRS schedule.

a.       If the firm purchases the grinders before year end, what depreciation expenses will it be able to claim this year? (Use Table 10.4 on page 308 of the Brooks text, and you can round the percentages to the nearest, e.g., 33.33% to 33%).

Explanation / Answer

For a 5 year asset,the depreciation rate is 20% 80000*20%=$16000 This will reduce tax income to $414,000

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