Question
Mind Challenge, Inc. publishes innovative science textbooks for public schools. The companys management recently acquired the following two new pieces of equipment. Computer-controlled printing press:
Mind Challenge, Inc. publishes innovative science textbooks for public schools. The companys management recently acquired the following two new pieces of equipment.
Computer-controlled printing press: cost, $250,000; expected useful life, 12 years.
Duplicating equipment to be used in the administrative offices: cost, $60,000; expected useful life, six years.
The company uses straight-line depreciation for book purposes and the MACRS accelerated depreciation schedule for tax purposes. The firms tax rate is 40 percent; its after-tax hurdle rate is 10 percent. Neither machine has any salvage value.
Use Appendix A and Exhibit 16-9 for your reference. (Use appropriate factor(s) from the tables provided.)
Required:
For each of the publishing companys new pieces of equipment:
Prepare a schedule of the annual depreciation expenses for book purposes.
Determine the appropriate MACRS property class.
Prepare a schedule of the annual depreciation expenses for tax purposes.
Compute the present value of the depreciation tax shield.
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