Sharpe Machining Company purchased industrial tools costing $60,000, which fall in the 3-year property class under MACRS.
Use Appendix A and Exhibit 16-9 for your reference. (Use appropriate factor(s) from the tables provided.)
1. Prepare a schedule of depreciation deductions assuming:
a. The firm uses the accelerated depreciation schedule specified by MACRS.
b. The firm uses the optional straight-line depreciation method and the half-year convention.
2. Calculate the present value of the depreciation tax shield under each depreciation method listed in requirement 1. Sharpe Machining Companys after-tax hurdle rate is 8 percent, and the firms tax rate is 30 percent.