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Depreciation Tax Shields

Lincoln Company has purchased equipment for $600,000. After it is fully depreciated, the equipment will have no salvage value. Lincoln may select either of the following depreciation schedules for tax purposes:

Option 1Option 2YearDepreciationDepreciation1$120,000$60,0002192,000120,0003115,200120,000469,120120,000569,120120,000634,56060,000

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:

Year (N)Tax Savings (FV)

Present Value1$Answer

$Answer

2Answer

Answer

3Answer

Answer

4Answer

Answer

5Answer

Answer

6Answer

Answer

$Answer

Option 2 depreciation:

Year (N)Tax Savings (FV)Present Value1$Answer

$Answer

2Answer

Answer

3Answer

Answer

Incorrect

0.00 points out of 1.00

4Answer

Answer

5Answer

Answer

6Answer

Answer

$Answer