1. Tax depreciation shelters a portion of annual operating income from taxation. However, the amount of cumulative tax depreciation is taxed when the property is sold. Suppose that your taxes due on sale will be $35,000 greater than if the property had not been depreciated. If the sale were to occur five years from now, determine the present value of the tax on depreciation recapture in the year of sale assuming a discount rate of 9.5%.
A) $31,963
B) $22,233
C) $55,098
D) $134,390
2. Given the following information, calculate the straight-line depreciation rate for the second year: cost recovery period: 27½ years, date of purchase: June 12th.
A) 1.67%
B) 3.63%
C) 1.97%
D) 20.0%
3. Suppose that you are able to generate an annual depreciation deduction of $20,000 that would otherwise have been taxed at a 30% rate each year for seven years. Suppose that your taxes due on sale in year 7 will be $32,000 greater than if the property had not been depreciated. Determine the net benefit of depreciation assuming a discount rate of 6.5%.
A) $53,499
B) $32,907
C) $20,592
D) $12,315