Lincoln Company has purchased equipment for $400,000. After it is fully depreciated, the equipment will have no select either of the following depreciation schedules for tax purposes:
able[[, able[[Option 1],[Year],[Depreciation]], able[[Option 2],[Depreciation]]],[1,$80,000,$40,000
v HW Ch12 Lincoln Company has purchased equipment for$400.000.After it is fully depreciated,the equipment will have no s select either of the following depreciation schedules for tax purposes: Option1 Option 2 Year Depreciation Depreciation 1 $80,000 $40.000 2 128,000 80,000 3 76,800 80,000 4 46,080 80,000 5 46,080 80,000 6 23,040 40,000
Assuming a 40% tax rate and a 12% desired annual return.compute the total present value of the tax savings provided depreciation tax shields Round answers to the nearest whole number Use rounded answers to calculate total.
Option1depreciation:
Year Tax Savings (N (FV) Present Value 1 $ 32,000 25.571 2 51,200 25.510 3 30.720 22.777 4 18.432 20.337 5 18.432 18.158 6 9.216 8,106 $ 123.459
Option2 depreciation: Year Tax Savings (N) (FV) Present Value 16,000 $ 14.286 32,000 25.510 2 32,000 22.777 32.000 20,337 32,000 18,158 16,000 8.106 109.173