This exercise uses the assumed Northeast USA data from Short Exercise. Assume Northeast USA is trying to decide which depreciation method to use for income tax purposes. The company can choose from among the following methods: (a) straight-line, (b) units of production, or (c) double-declining-balance.
1. Which depreciation method offers the tax advantage for the first year? Describe the nature of the tax advantage.
2. How much income tax will Northeast USA save for the first year of the airplane s use under the method you selected above as compared with using the straight-line depreciation method? The income tax rate is 32%. Ignore any earnings from investing the extra cash.