Problem:
The White Pine Hotel has always depreciated its fixed assets using the straight-line method for both book and tax purposes. L.M. Tree, a newly hired tax consultant, has suggested this result in excessive taxes and has recommended the DDB method be used for future equipment purposes.
Planned equipment purposes for 20X2 and other relevant information are as follow:
Cost of equipment-------------------------------------$500000
Assumed purchase date-------------------------------1/1/X2
Salvage value------------------------------------------ -0-
Useful life-------------------------------------------- Four years
Marginal tax rate------------------------------------ 30%
Investment interest rate---------------------------- 10%
Assume: All "tax savings" for one year are invested at the beginning of the following year.
Required:
As a newly hired intern you have been requested to prepare a schedule proving the wisdom LM's advice.