Exercise 16-33 Depreciation Tax Shield (Section 2) (LO 16-5)

Trenton Fabrication Company purchased industrial tools costing $110,000, which fall in the 3-year property class under MACRS.

Use Appendix A and Exhibit 16-9. for your reference. (Use appropriate factor(s) from the tables provided. Round your final answers to the nearest dollar amount.)

Required:

1.	Prepare a schedule of depreciation deductions assuming:

a.	The firm uses the accelerated depreciation schedule specified by MACRS.

b.	The firm uses the optional straight-line depreciation method and the half-year convention.

2.	Calculate the present value of the depreciation tax shield under each depreciation method listed in part (1). Trenton Fabrication Companys after-tax hurdle rate is 12 percent, and the firms tax rate is 30 percent.