Depreciation Tax Shields

Lincoln Company has purchased equipment for $300,000. After it is fully depreciated, the equipment will have no salvage value. Lincoln may select either of the following 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.

Round answers to the nearest whole number. Use rounded answers to calculate total.

Option 1 depreciation:

N Option 1 Option 2 Year Depreciation Depreciation 1 $60,000 $30,000 96,000 60,000 3 57,600 60,000 4 34,560 60,000 5 34,560 60,000 6 17,280 30,000 Option 1 depreciation: Year (N) Tax Savings (FV) Present Value $ 1 $ 2 3 4 5 LO $ Option 2 depreciation: Year (N) Tax Savings (FV) Present Value $ 1 $ 2 3 4 5 6 $ Option 1 Option 2 ation schedule would be more attractive to Lincoln?