On January 1, 2017, Timely Delivery Transportation Company purchased a used aircraft at a cost of $57,400,000. Timely Delivery expects the plane to remain useful for five years (4,500,000 miles) and to have a residual value of $5,400,000. Timely Delivery expects to fly the plane 725,000 miles the first year, 1,200,000 miles each year during the second, third, and fourth years, and 175,000 miles the last year. (Click the icon to view the first year depreciation amounts under each method.) Read the requirements. 1. Which depreciation method offers the highest tax advantage for the first year? Describe the nature of the tax advantage. The double-declining-balance method offers the tax advantage for the first year of the asset's use. The advantage results from the greater amount of depreciation (versus the other methods) in the first year. This method also produces the fastest tax deductions and conserves cash that the taxpayer can invest to earn more income. 2. How much income tax will Timely Delivery save for the first year of the airplane's use under the method you just selected as compared with using the straight-line depreciation method? The company's income tax rate is 28%. Ignore any earnings from investing the extra cash. (Round the depreciation rates to two decimal places. Round your final answers to the nearest whole dollar.) Compute the tax savings: - X Requirements x Reference Less: Straight-line depreciation Excess depreciation tax deduction Income tax rate 28% Method Income tax savings for first year (a) straight-line (b) units-of-production (c) double-declining-balance First year depreciation $ 10,400,000 $ 8,381,000 $ 22,960,000 Assume Timely Delivery is trying to decide which depreciation method to use for income tax purposes. The company can choose from among the following methods: (a) straight-line, (b) units-of-production, or (c) double-declining-balance methods. 1. Which depreciation method offers the highest tax advantage for the first year? Describe the nature of the tax advantage. 2. How much income tax will Timely Delivery save for the first year of the airplane's use under the method you just selected as compared with using the straight-line depreciation method? The company's income tax rate is 28%. Ignore any earnings from investing the extra cash. Print Done Print Done