Table: Modified ACRS depreciation allowances (MACRS)
Class
Three-year
Five-year
Seven-year
Examples
Equipment used in research
Autos, computers
Most industrial equipment
Property class
Year
Three-year
Five-year
Seven-year
1
33.33%
20.00%
14.29%
2
44.45
32.00
24.49
3
14.81
19.20
17.49
4
7.41
11.52
12.49
5
11.52
8.93
6
5.76
8.92
7
8.93
8
4.46
1. A proposed new project has projected sales of $164,000, costs of $87,000, and depreciation of
$15,200. The tax rate is 35 percent. Calculate the operating cash flow using the four different
approaches. What is the depreciation tax shield?
2. A project has projected sales of $62,000, costs of $48,000, depreciation expense of $6,200,
and a tax rate of 34 percent. Calculate the operating cash flow using the four different
approaches. What is the depreciation tax shield?
3. A piece of newly purchased industrial equipment costs $854,000.
1). Assume the equipment is depreciated straight-line to zero over its seven-year tax life. What is
the depreciation expense in Year 4 for this equipment? What is the book value at the end of Year
5 for this equipment?
