Question

Highlight Company is considering the purchase of the following computer equipment, which is considered 5-year property...

Highlight Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes:

Acquisition cost $420,000
Annual cash flow $140,000
Annual operating costs $ 31,000
Expected salvage value $ 0
Cost of capital 11%
Tax rate 35%


Highlight Company plans to use Modified accelerated cost recovery system (MACRS) and keep the computer equipment for seven years.What would the MACRS deduction in Year 1 be? (Round your answer to the nearest dollar.)

Business   Accounting   
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Answer #1

MACRS deduction in Year 1 will be 84,000

Workings:

Acquisition Cost        420,000.00
Year MACRS Deduction Rate Deduction
1 20%      84,000.00
2 32%    134,400.00
3 19.20%      80,640.00
4 11.52%      48,384.00
5 11.52%      48,384.00
6 5.76%      24,192.00


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