Sharpe Machining Company purchased industrial tools costing $120,000, 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.)

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 requirement (1). Sharpe Machining Companys after-tax hurdle rate is 6 percent, and the firms tax rate is 30 percent.