Freedom Corporation acquired a fixed asset for $170,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 11% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. 2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges. 3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a 3-year asset. Use the half-year convention. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'- digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. (Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Incremental PV of tax savings using SYD depreciation EXHIBIT 12.4 MACRS Depreciation Rates Year 3-year 33.33 5-year 20.00 7-year 14.29 10-year 10.00 15-year 5.00 20-year 3.75 1 2 44.45 32.00 24.49 18.00 9.50 7.22 3 14.81 19.20 17.49 14.40 8.55 6.68 4 7.41 11.52* 12.49 11.52 7.70 6.18 5 11.52 8.93* 9.22 6.93 5.71 6 5.76 8.92 6.23 5.28 7.37 6.55* 7 8.92 4.89 4.52 8 4.47 5.90* 5.90 5.91 6.55 6.56 4.46* 9 10 6.55 5.90 4.46 11 3.28 etc. etc. *First year of switching to the straight-line method. Source: www.irs.gov/publications/p946). TABLE 1 Present Value of $1 4% 6% 9% 10% 13% Periods 1 1 5% 0.952 0.907 7% 0.935 8% 0.926 25% 0.800 0.917 0.962 0.925 0.889 0.943 0.890 0.909 0.826 0.885 0.783 2 30% 0.769 0.592 0.873 0.842 12% 0.893 0.797 0.712 0.636 3 0.693 0.857 0.794 0.735 0.681 0.772 0.708 11% 0.901 0.812 0.731 0.659 0.593 0.535 0.816 0.763 0.713 4 0.840 0.792 0.747 0.705 0.855 0.613 5 0.640 0.512 0.410 0.328 0.262 0.455 0.350 0.269 0.650 0.567 0.507 0.543 0.480 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.751 0.683 0.621 0.564 0.513 0.467 0.424 6 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.666 0.596 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.207 7 7 0.623 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.482 0.210 0.159 0.630 0.583 0.540 0.500 0.665 0.627 0.592 0.547 0.502 0.452 0.404 8 0.425 0.376 0.434 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 0.141 0.123 0.107 0.582 0.544 0.123 9 0.361 0.094 0.460 0.422 0.333 0.295 10 0.558 0.508 0.463 0.391 0.352 0.317 0.286 0.168 0.134 0.107 0.086 0.069 0.055 0.073 0.056 11 0.475 0.429 0.386 0.350 0.319 0.237 0.135 0.585 0.557 0.530 0.388 0.356 0.527 0.497 0.469 12 0.625 0.261 0.231 0.322 0.287 0.257 0.229 0.205 0.444 0.397 0.208 0.112 0.043 0.033 13 0.415 0.368 0.326 0.290 0.204 0.601 0.577 14 0.505 0.388 0.299 0.181 15 0.442 0.417 0.394 0.371 0.481 0.182 0.160 0.140 0.123 0.340 0.315 0.292 0.362 0.339 0.263 0.239 0.218 0.275 0.252 0.258 0.232 0.209 0.188 0.170 0.153 0.025 0.020 0.015 16 0.458 17 0.012 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.436 0.416 0.317 0.296 0.270 0.250 0.231 0.212 0.198 0.180 0.183 0.163 0.146 0.130 0.116 0.104 0.160 0.141 0.125 0.111 0.098 0.087 0.108 0.095 18 0.093 0.081 0.070 0.009 19 0.555 0.534 0.513 0.494 0.475 0.456 0.422 0.390 0.375 0.308 0.253 0.350 0.331 0.312 0.277 0.083 0.396 0.377 0.232 0.215 20 0.194 0.178 0.150 0.007 0.005 0.044 0.035 0.028 0.023 0.018 0.014 0.012 0.007 0.005 0.004 0.001 22 0.342 0.258 0.226 0.197 0.278 0.068 0.003 0.073 0.056 0.043 24 0.310 0.295 0.23 0.164 0.149 0.123 0.102 0.092 0.057 0.036 0.022 0.138 0.124 0.101 0.082 0.074 0.044 0.026 0.083 0.066 0.059 0.184 0.158 0.146 0.099 0.068 25 0.018 0.013 0.010 0.247 0.233 0.174 0.130 0.061 0.046 0.035 0.030 0.015 0.002 0.001 0.184 0.126 0.116 0.075 0.049 0.053 0.047 0.026 0,038 0.131 0.000 30 35 40 0.181 0.033 0.019 0.011 0.014 0.020 0.010 0.005 0.008 0.094 0.067 0.004 0.002 0.001 0.000 0.000 0.208 0.142 0.097 0.046 0.032 0.015 0.008 0.004 0.000 0.000 TABLE 2 Present Value of Annuity of $1 Periods 4% 6% 9% 10% 14% 8% 0.926 12% 0.893 13% 0.885 20% 0.833 1 2 1.528 5% 0.952 1.859 2.723 3.546 4.329 3 7% 0.935 1.808 2.624 3.387 4.100 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 0.909 1.736 2.487 3.170 3.791 4 11% 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5.146 5.537 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 1.668 2.361 2.974 3.517 3.998 4.423 2.106 2.589 2.991 15% 0.870 1.626 2.283 2.855 3.352 3.784 4.160 0.877 1.647 2.322 2.914 3.433 3.889 4.288 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5 25% 0.800 1.440 1.952 2.362 2.689 2.951 3.161 3.329 3.463 30% 0.769 1.361 1.816 2.166 2.436 2.643 2.802 2.925 3,019 6 5.076 4.767 4.355 3.326 7 4.868 5.786 6.463 7.108 8 5.389 5.971 6.515 3.605 3.837 4.487 5.335 5.759 4.799 5.132 4.639 4.946 9 4.772 4.031 4.192 10 8.111 7.360 7.024 5.889 5.426 5.019 3.092 7.722 8.306 6.145 6.495 5.650 5.938 5.216 5.453 3.571 3.656 7.887 7.499 7.139 6.805 6.207 5.687 5.234 3.147 11 12 13 8.760 9.385 4.327 4.439 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.918 5.660 5.421 3.725 3.190 6.492 6.750 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 6.122 5.842 5.583 4.533 3.780 3.223 14 10.563 9.899 9.295 6.982 6.302 4.611 3.824 8.745 9.108 8.244 8.559 7.786 8.061 5.724 5.847 15 11.118 10.380 9.712 7.191 6.462 4.675 3.859 6.628 6.811 6.974 7.120 10.838 6.604 16 17 18 7.379 7.549 4.730 4.775 6.729 7.367 7.606 7.824 8.022 8.201 8.365 8.514 7.250 11.652 12.166 12.659 13.134 13.590 14.451 15.247 6.840 10.106 10.477 10.828 11.158 11.470 12.042 9.447 9.763 10.059 10.336 10.594 11.061 11.469 6.002 6.142 6.265 6.373 6.467 6.550 6.623 6.743 8.851 9.122 9.372 9.604 9.818 10.200 10.529 8.313 8.544 8.756 8.950 9.129 9.442 9.707 11.274 11.690 12.085 12.462 13.163 13.799 14.094 7.702 7.839 19 5.954 6.047 6.128 6.198 6.259 6.359 4.812 4.843 3.887 3.910 3.928 3.942 3.954 3.970 3.249 3.268 3.283 3.295 3.304 3.311 3.316 3.323 3.327 7.366 20 7.963 4.870 7.469 7.645 22 8.772 6.938 7.025 7.170 7.283 7.330 8.176 8.348 4.909 24 12.550 8.985 7.784 6.835 6.434 4.937 3.981 25 12.783 11.654 9.077 8.422 7.843 6.464 4.948 3.985 3.329 15.622 17.292 10.675 11.258 6.873 7.003 30 15.372 13.765 9.427 8.694 8.055 7.496 6.566 4.979 3.995 3.332 9.823 10.274 10.567 10.757 18.665 16.374 12.409 12.948 13.332 11.655 7.586 6.617 4.992 3.998 35 40 3.333 14.498 15.046 9.644 9.779 8.855 8.951 8.176 8.244 7.070 7.105 19.793 17.159 11.925 7.634 6.642 4.997 3.999 3.333

Question

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Freedom Corporation acquired a fixed asset for $170,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 11% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. 2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges. 3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a 3-year asset. Use the half-year convention. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'- digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. (Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Incremental PV of tax savings using SYD depreciation EXHIBIT 12.4 MACRS Depreciation Rates Year 3-year 33.33 5-year 20.00 7-year 14.29 10-year 10.00 15-year 5.00 20-year 3.75 1 2 44.45 32.00 24.49 18.00 9.50 7.22 3 14.81 19.20 17.49 14.40 8.55 6.68 4 7.41 11.52* 12.49 11.52 7.70 6.18 5 11.52 8.93* 9.22 6.93 5.71 6 5.76 8.92 6.23 5.28 7.37 6.55* 7 8.92 4.89 4.52 8 4.47 5.90* 5.90 5.91 6.55 6.56 4.46* 9 10 6.55 5.90 4.46 11 3.28 etc. etc. *First year of switching to the straight-line method. Source: www.irs.gov/publications/p946). TABLE 1 Present Value of $1 4% 6% 9% 10% 13% Periods 1 1 5% 0.952 0.907 7% 0.935 8% 0.926 25% 0.800 0.917 0.962 0.925 0.889 0.943 0.890 0.909 0.826 0.885 0.783 2 30% 0.769 0.592 0.873 0.842 12% 0.893 0.797 0.712 0.636 3 0.693 0.857 0.794 0.735 0.681 0.772 0.708 11% 0.901 0.812 0.731 0.659 0.593 0.535 0.816 0.763 0.713 4 0.840 0.792 0.747 0.705 0.855 0.613 5 0.640 0.512 0.410 0.328 0.262 0.455 0.350 0.269 0.650 0.567 0.507 0.543 0.480 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.751 0.683 0.621 0.564 0.513 0.467 0.424 6 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.666 0.596 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.207 7 7 0.623 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.482 0.210 0.159 0.630 0.583 0.540 0.500 0.665 0.627 0.592 0.547 0.502 0.452 0.404 8 0.425 0.376 0.434 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 0.141 0.123 0.107 0.582 0.544 0.123 9 0.361 0.094 0.460 0.422 0.333 0.295 10 0.558 0.508 0.463 0.391 0.352 0.317 0.286 0.168 0.134 0.107 0.086 0.069 0.055 0.073 0.056 11 0.475 0.429 0.386 0.350 0.319 0.237 0.135 0.585 0.557 0.530 0.388 0.356 0.527 0.497 0.469 12 0.625 0.261 0.231 0.322 0.287 0.257 0.229 0.205 0.444 0.397 0.208 0.112 0.043 0.033 13 0.415 0.368 0.326 0.290 0.204 0.601 0.577 14 0.505 0.388 0.299 0.181 15 0.442 0.417 0.394 0.371 0.481 0.182 0.160 0.140 0.123 0.340 0.315 0.292 0.362 0.339 0.263 0.239 0.218 0.275 0.252 0.258 0.232 0.209 0.188 0.170 0.153 0.025 0.020 0.015 16 0.458 17 0.012 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.436 0.416 0.317 0.296 0.270 0.250 0.231 0.212 0.198 0.180 0.183 0.163 0.146 0.130 0.116 0.104 0.160 0.141 0.125 0.111 0.098 0.087 0.108 0.095 18 0.093 0.081 0.070 0.009 19 0.555 0.534 0.513 0.494 0.475 0.456 0.422 0.390 0.375 0.308 0.253 0.350 0.331 0.312 0.277 0.083 0.396 0.377 0.232 0.215 20 0.194 0.178 0.150 0.007 0.005 0.044 0.035 0.028 0.023 0.018 0.014 0.012 0.007 0.005 0.004 0.001 22 0.342 0.258 0.226 0.197 0.278 0.068 0.003 0.073 0.056 0.043 24 0.310 0.295 0.23 0.164 0.149 0.123 0.102 0.092 0.057 0.036 0.022 0.138 0.124 0.101 0.082 0.074 0.044 0.026 0.083 0.066 0.059 0.184 0.158 0.146 0.099 0.068 25 0.018 0.013 0.010 0.247 0.233 0.174 0.130 0.061 0.046 0.035 0.030 0.015 0.002 0.001 0.184 0.126 0.116 0.075 0.049 0.053 0.047 0.026 0,038 0.131 0.000 30 35 40 0.181 0.033 0.019 0.011 0.014 0.020 0.010 0.005 0.008 0.094 0.067 0.004 0.002 0.001 0.000 0.000 0.208 0.142 0.097 0.046 0.032 0.015 0.008 0.004 0.000 0.000 TABLE 2 Present Value of Annuity of $1 Periods 4% 6% 9% 10% 14% 8% 0.926 12% 0.893 13% 0.885 20% 0.833 1 2 1.528 5% 0.952 1.859 2.723 3.546 4.329 3 7% 0.935 1.808 2.624 3.387 4.100 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 0.909 1.736 2.487 3.170 3.791 4 11% 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5.146 5.537 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 1.668 2.361 2.974 3.517 3.998 4.423 2.106 2.589 2.991 15% 0.870 1.626 2.283 2.855 3.352 3.784 4.160 0.877 1.647 2.322 2.914 3.433 3.889 4.288 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5 25% 0.800 1.440 1.952 2.362 2.689 2.951 3.161 3.329 3.463 30% 0.769 1.361 1.816 2.166 2.436 2.643 2.802 2.925 3,019 6 5.076 4.767 4.355 3.326 7 4.868 5.786 6.463 7.108 8 5.389 5.971 6.515 3.605 3.837 4.487 5.335 5.759 4.799 5.132 4.639 4.946 9 4.772 4.031 4.192 10 8.111 7.360 7.024 5.889 5.426 5.019 3.092 7.722 8.306 6.145 6.495 5.650 5.938 5.216 5.453 3.571 3.656 7.887 7.499 7.139 6.805 6.207 5.687 5.234 3.147 11 12 13 8.760 9.385 4.327 4.439 8.863 8.384 7.943 7.536 7.161 6.814 6.194 5.918 5.660 5.421 3.725 3.190 6.492 6.750 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 6.122 5.842 5.583 4.533 3.780 3.223 14 10.563 9.899 9.295 6.982 6.302 4.611 3.824 8.745 9.108 8.244 8.559 7.786 8.061 5.724 5.847 15 11.118 10.380 9.712 7.191 6.462 4.675 3.859 6.628 6.811 6.974 7.120 10.838 6.604 16 17 18 7.379 7.549 4.730 4.775 6.729 7.367 7.606 7.824 8.022 8.201 8.365 8.514 7.250 11.652 12.166 12.659 13.134 13.590 14.451 15.247 6.840 10.106 10.477 10.828 11.158 11.470 12.042 9.447 9.763 10.059 10.336 10.594 11.061 11.469 6.002 6.142 6.265 6.373 6.467 6.550 6.623 6.743 8.851 9.122 9.372 9.604 9.818 10.200 10.529 8.313 8.544 8.756 8.950 9.129 9.442 9.707 11.274 11.690 12.085 12.462 13.163 13.799 14.094 7.702 7.839 19 5.954 6.047 6.128 6.198 6.259 6.359 4.812 4.843 3.887 3.910 3.928 3.942 3.954 3.970 3.249 3.268 3.283 3.295 3.304 3.311 3.316 3.323 3.327 7.366 20 7.963 4.870 7.469 7.645 22 8.772 6.938 7.025 7.170 7.283 7.330 8.176 8.348 4.909 24 12.550 8.985 7.784 6.835 6.434 4.937 3.981 25 12.783 11.654 9.077 8.422 7.843 6.464 4.948 3.985 3.329 15.622 17.292 10.675 11.258 6.873 7.003 30 15.372 13.765 9.427 8.694 8.055 7.496 6.566 4.979 3.995 3.332 9.823 10.274 10.567 10.757 18.665 16.374 12.409 12.948 13.332 11.655 7.586 6.617 4.992 3.998 35 40 3.333 14.498 15.046 9.644 9.779 8.855 8.951 8.176 8.244 7.070 7.105 19.793 17.159 11.925 7.634 6.642 4.997 3.999 3.333

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Freedom Corporation acquired a fixed asset for $170,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a

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