Two depreciation methods - MACRS depreciation with n = 5, and SL alternative to MACRS depreciation method with n = 8 are being considered by a new, small business president for an asset with first cost 10,000 and no salvage value. Note that although generally not used, in this case the half-year convention will also be used for the SL method. If each year the CFBT = $4,000, select the better depreciation method based on the present worth of taxes (use the notation PW- Taxes). Use T_e = 0.35 and i = 20% per year. Create two tables, one for the MACRS method and one for the SL method, each with the following columns: Year CFBT d D TI TAXES Be very careful at how many rows you must have in the MACRS table and in the SL table. Create a condensed form for the SL table with only 3 rows, one for year 1, one for year 9, and one for all years from 2 to 8. Write all the formulae you will need to compute the entries in your table and give as example of calculations only those for row 4 of the table for each of the two depreciation methods. Write explicitly all the intermediate steps of your computations. a) Compare the two depreciation methods base on their PW of TAXES, and draw the respective CFD, compare and choose the best. State in a verbal statement your final answer based on the PW-TAXES comparison. b) What is the value of total paid In taxes for each method. Explain your answer with a brief verbal statement. Two depreciation methods - MACRS depreciation with n = 5, and SL alternative to MACRS depreciation method with n = 8 are being considered by a new, small business president for an asset with first cost 10,000 and no salvage value. Note that although generally not used, in this case the half-year convention will also be used for the SL method. If each year the CFBT = $4,000, select the better depreciation method based on the present worth of taxes (use the notation PW- Taxes). Use T_e = 0.35 and i = 20% per year. Create two tables, one for the MACRS method and one for the SL method, each with the following columns: Year CFBT d D TI TAXES Be very careful at how many rows you must have in the MACRS table and in the SL table. Create a condensed form for the SL table with only 3 rows, one for year 1, one for year 9, and one for all years from 2 to 8. Write all the formulae you will need to compute the entries in your table and give as example of calculations only those for row 4 of the table for each of the two depreciation methods. Write explicitly all the intermediate steps of your computations. a) Compare the two depreciation methods base on their PW of TAXES, and draw the respective CFD, compare and choose the best. State in a verbal statement your final answer based on the PW-TAXES comparison. b) What is the value of total paid In taxes for each method. Explain your answer with a brief verbal statement
