Mind Challenge, Inc. publishes innovative science textbooks for public schools. The company’s management recently acquired the following two new pieces of equipment.
Computer-controlled printing press: cost, $250,000; expected useful life, 12 years.
Duplicating equipment to be used in the administrative offices: cost, $60,000; expected useful life, six years.
The company uses straight-line depreciation for book purposes and the MACRS accelerated depreciation schedule for tax purposes. The firm’s tax rate is 40 percent; its after-tax hurdle rate is 10 percent. Neither machine has any salvage value.
Use Appendix A and Exhibit 16-9 for your reference. (Use appropriate factor(s) from the tables provided.)
Required:
For each of the publishing company’s new pieces of equipment:
Prepare a schedule of the annual depreciation expenses for book purposes.
Determine the appropriate MACRS property class.
Prepare a schedule of the annual depreciation expenses for tax purposes.
Compute the present value of the depreciation tax shield.