You intended to buy new equipment for $2,000,000, you will depreciate it in value using MACRS depreciation for a 5-year property. The equipment will then be leased to a friend for $500,000 per year for 4 years. After 4 years, it will be sold to your friend for $700,000.

5-year MACRS schedule:

year 1 = 20%

year 2 = 32%

year 3 = 19.2%

year 4 = 11.52%

year 5 = 11.52%

year 6 = 5.76%

a) what is the book value of the equipment in year 3

b) what, if any, is the recaptured depreciation in year 4

c) is the tax rate is 40% what are the taxes paid in year 4 for the purchase and lease of the equipment

d) will you buy the equipment if it has a MARR of 12%