Question

Please show work, step by step, no excel. Thank you!

(MACRS depreciation) Henebry Boat Rentals has purchased several for a total of $150,00. They are classed as five-year property.

1. What is the annual depreciation charge for these assets?
2. If the firm’s marginal tax rate is 40%, what is the annual depreciation tax shield?
3. Discounted at 8%, what is the present value of the depreciation tax shield?

Answer 1

A.

Year	MACR RATE	Depreciation $ (MACR*15000)
1	0.2	3000
2	0.32	4800
3	0.192	2880
4	0.1152	1728
5	0.1152	1728
6	0.0576	864

B.

Year	Depreciation	Tax rate	Tax shield
1	3000	0.4	1200.0
2	4800	0.4	1920.0
3	2880	0.4	1152.0
4	1728	0.4	691.2
5	1728	0.4	691.2
6	864	0.4	345.6

C.

Year	Tax shield	PVF @ 8%	PV $
1	1200.0	0.925925926	1111.11
2	1920.0	0.85733882	1646.09
3	1152.0	0.793832241	914.49
4	691.2	0.735029853	508.05
5	691.2	0.680583197	470.42
6	345.6	0.630169627	217.79
		TOTAL	4867.95