Mendota Company has purchased equipment for \($100,000.\) After it is fully depreciated, the equipment will have no salvage value. Mendota may selecting depreciation schedules for tax purposes:

Assuming a 40% tax rate and a 12% desired annual return, compute the total present value of the tax savings provided by these alternative depreciation tax shields. Which depreciation schedule would be more attractive to Mendota?

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Year Option 1 Depreciation Option 2 Depreciation $20,000 $10,000 2 32,000 20,000 3 19,200 20,000 4 11,520 20,000 56 11,520 20,000 5,760 10,000