Question
A firm purchases $36,800 worth of computer equipment to be used in a 4-year project. The firm estmates that its market value after 4 years
A firm purchases $36,800 worth of computer equipment to be used in a 4-year project. The firm estmates that its market value after 4 years will be 20% of its original value. Computers are classified by the IRS in the 5-year property class and can be depreciated using the Modified Accelerated Cost Recovery System (MACRS) given below. The firm's cost of capital is 8.0% and its combined federal & state marginal corporate tax rate is 27.4%.
| Year | MACRS Allowance | |||
| 1 | 20.00% | Base 0 = | $36,800.00 | |
| 2 | 32.00% | Salvage rate = | 20.00% | |
| 3 | 19.20% | Cost of capital = | 8.00% | |
| 4 | 11.52% | Corp. tax rate = | 27.40% | |
| 5 | 11.52% | Project years = | 4 | |
| 6 | 5.76% | |||
What is the depreciation allowance for year 2?
| What will be the firm's CAPEX in year 4 if this is the only fixed asset that is salvaged? |
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
To calculate the depreciation allowance for year 2 we need to determine the depreciation rate for year 2 using the Modified Accelerated Cost Recovery ...
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Step: 2
Step: 3
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Modern Advanced Accounting in Canada
Authors: Hilton Murray, Herauf Darrell
8th edition
1259087557, 1057317623, 978-1259087554
