A bioengineer is evaluating methods used to apply adhesive onto microporous paper tape that is commonly used

Question:

A bioengineer is evaluating methods used to apply adhesive onto microporous paper tape that is commonly used after surgery. The machinery costs $200,000, has no salvage value, and the CFBT estimate is $75,000 per year for up to 10 years. The Te = 38% and i = 8% per year. The two depreciation methods to consider are: MACRS with n = 5 years and SL with n = 8 years (neglect the half-year convention effect). For a study period of 8 years,

(a) Determine which depreciation method offers the better tax advantage,

(b) Demonstrate that the same total taxes are paid for MACRS and SL.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...