You are tasked with comparing the tax savings from two different depreciation methods. You’ve purchased an...

60.1K

Verified Solution

Question

Accounting

You are tasked with comparing the tax savings from two differentdepreciation methods. You’ve purchased an asset for $100,000. Ithas a depreciable life of 5 years. The marginal tax rate is $30%.The minimum return on alternative investments is 10%.
If the asset can be depreciated to zero value at the end of 5years by the “straight line method”, what is the applicabledepreciation schedule?
Schedule A
Schedule B
Schedule C
Schedule D
Schedule E
Year 1
$20k
$20k
$100k
$50k
$75k
Year 2
$20k
$30k
$0
$25k
$25k
Year 3
$20k
$25k
$0
$15k
$0
Year 4
$20k
$15k
$0
$10k
$0
Year 5
$20k
$10k
$0
$0k
$0
Which depreciation schedule would contribute the greatestsavings if it were used in an NPV calculation for the asset?
Which depreciation schedule would contribute the least savingsin an NPV calculation?
If schedule D were used, how much of the asset is left to bedepreciated at the end of Year 2? This is called the “book value”of the asset. That value is tracked by the accounting department asthe value of the asset (from a tax perspective) that remains on the“books”.

Answer & Explanation Solved by verified expert

4.4 Ratings (899 Votes)

Cost of asset 100000 Life 5 Depreciation per year in SLM 15 2000 So Depreciation of 10000020 20K every year So applicable schedule is A Solution 2 Every depreciation schedule will provide annual depreciation which in turn will provide the tax benefit 30 so lets calculate the NPV of the See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

You are tasked with comparing the tax savings from two differentdepreciation methods. You’ve purchased an asset for $100,000. Ithas a depreciable life of 5 years. The marginal tax rate is $30%.The minimum return on alternative investments is 10%.If the asset can be depreciated to zero value at the end of 5years by the “straight line method”, what is the applicabledepreciation schedule?Schedule ASchedule BSchedule CSchedule DSchedule EYear 1$20k$20k$100k$50k$75kYear 2$20k$30k$0$25k$25kYear 3$20k$25k$0$15k$0Year 4$20k$15k$0$10k$0Year 5$20k$10k$0$0k$0Which depreciation schedule would contribute the greatestsavings if it were used in an NPV calculation for the asset?Which depreciation schedule would contribute the least savingsin an NPV calculation?If schedule D were used, how much of the asset is left to bedepreciated at the end of Year 2? This is called the “book value”of the asset. That value is tracked by the accounting department asthe value of the asset (from a tax perspective) that remains on the“books”.

	Schedule A	Schedule B	Schedule C	Schedule D	Schedule E
Year 1	$20k	$20k	$100k	$50k	$75k
Year 2	$20k	$30k	$0	$25k	$25k
Year 3	$20k	$25k	$0	$15k	$0
Year 4	$20k	$15k	$0	$10k	$0
Year 5	$20k	$10k	$0	$0k	$0