Answered: Table 4.2 Rounded Depreciation…

College Accounting (Book Only): A Career Approach

13th Edition

ISBN:9781337280570

Author:Scott, Cathy J.

Publisher:Scott, Cathy J.

ChapterA: Methods Of Depreciation

Section: Chapter Questions

Problem 4P: Use the information in Problem A-1 to solve this problem. Assume that the van is five-year property...

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Cushing Partners is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $20,000; it was being depreciated under MACRS, using a 5-year recovery period. (See Table 4.2 for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,000 and requires $5,000 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,000 without incurring any removal or cleanup costs. The firm is subject to a 40% tax rate. Calculate the initial investment associated with the proposed purchase of a new grading machine.

Table 4.2
Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes
Percentage by recovery year O
Recovery year
з уears
5 years
7 years
10 years
1
33%
20%
14%
10%
45
32
25
18
15
19
18
14
4
7
12
12
12
5
12
4
10
11
Totals
100%
100%
100%
100%
OThese percentages have been rounded to the nearest whole percent.

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