Mind Challenge, Inc. publishes innovative science textbooks for public schools. The company's management recently acquired the following two new pieces of equipment.
• Computer-controlled printing press: cost, $250,000; expected useful life, 12 years.
• Duplicating equipment to be used in the administrative offices: cost, $60,000; expected useful life, six years.
The company uses straight-line depreciation for book purposes and the MACRS accelerated depreciation schedule for tax purposes. The firm's tax rate is 40 percent; its after-tax hurdle rate is 10 percent. Neither machine has any salvage value.
Required:
For each of the publishing company's new pieces of equipment:
1. Prepare a schedule of the annual depreciation expenses for book purposes.
2. Determine the appropriate MACRS property class.
3. Prepare a schedule of the annual depreciation expenses for tax purposes.
4. Compute the present value of the depreciation tax shield?