Sharpe Machining Company purchased industrial tools costing $70,000, 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.)

Here is a link for first graph for clearer viewing Appendix_A.jpg (11763240) (mheducation.com) 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 10 percent, and the firms tax rate is 30 percent.

9 4 2911 :w 1 13 - 1 26 toxus ** 401 07 - 1920 GES DS SS Todule 1 wie PARE i 23 SR Exhibit 16-9 Selected MACRS Depreciation Percentages as Computed by the IRS (incorporates half-year convention, also incorporates recent modifications in the tax laws) Year 3-year 33.33% MACRS Property Class 5-year 7-year 20.00% 14.29% 10-year 10.00% 1 44.45 32.00 24.49 18.00 N 3 14.81* 19.20 17.49 14.40 4 7.41 11.52* 11.52 12.49 8.93* 5 11.52 9.22 6 5.76 7.37 7 8.92 8.93 4.46 6.55* 8 6.55 9 6.56 10 6.55 11 3.28 *Denotes the year during which the depreciation method switches to the straight-line method. Source: IRS Publication 946, entitled "How to Depreciate Property." 9 4 2911 :w 1 13 - 1 26 toxus ** 401 07 - 1920 GES DS SS Todule 1 wie PARE i 23 SR Exhibit 16-9 Selected MACRS Depreciation Percentages as Computed by the IRS (incorporates half-year convention, also incorporates recent modifications in the tax laws) Year 3-year 33.33% MACRS Property Class 5-year 7-year 20.00% 14.29% 10-year 10.00% 1 44.45 32.00 24.49 18.00 N 3 14.81* 19.20 17.49 14.40 4 7.41 11.52* 11.52 12.49 8.93* 5 11.52 9.22 6 5.76 7.37 7 8.92 8.93 4.46 6.55* 8 6.55 9 6.56 10 6.55 11 3.28 *Denotes the year during which the depreciation method switches to the straight-line method. Source: IRS Publication 946, entitled "How to Depreciate Property