Problem: Freedom Corporation acquired a fixed asset for $230,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 5% and an income tax rate of 40%.
Required:
Question 1: What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges.
Question 2: What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges.
Question 3: What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a 3-year asset. Use the half-year convention.
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