This exercise uses the assumed UPS data from Short Exercise S7-5. Assume UPS is trying to decide which depreciation method to use for income tax purposes.
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 UPS save for the first year of the airplane's use as compared with using the straight-line depreciation method? The income tax rate is 40%. Ignore any earnings from investing the extra cash.