E7-21A. (Learning Objective 2: Selecting the best depreciation method for income tax purposes) On June 30, 20X6, Rafa Corp. paid $260,000 for equipment that is expected to have an eight-year life. In this industry, the residual value of equipment is approximately 10%

of the asset’s cost. Rafa’s cash revenues for the year are $125,000, and cash expenses total

$75,000.

Assume Rafa has a choice of straight-line or DDB depreciation for taxation purposes. Select the depreciation method for income tax purposes. Then determine the extra amount of cash that Rafa can invest by using DDB depreciation, versus straight-line, for the year ended December 31, 20X6. The income tax rate is 40%.