7-11 The initial installed cost for a new piece of equipment is $10,000. After the equipment has been in use for 4 years, it is sold for $7000. The company that originally owned the equipment employs a straight-line method for determining depreciation costs. If the company had used the MACRS 5-year method for determining depreciation costs, the asset or book value for the piece of equipment at the end of 4 years would have been $1728. The total income tax rate for the company is 35 percent of all gross earnings. Capital gains taxes amount to 20 percent of the gain. How much net savings would the company have achieved by using the MACRS method instead of the straight-line depreciation method?

7-11 The initial installed cost for a new piece of equipment is $10,000. After the equipment has been in use for 4 years, it is sold for $7000. The company that originally owned the equipment employs a straight-line method for determining depreciation costs. If the company had used the MACRS 5-year method for determining depreciation costs, the asset or book value for the piece of equipment at the end of 4 years would have been $1728. The total income tax rate for the company is 35 percent of all gross earnings. Capital gains taxes amount to 20 percent of the gain. How much net savings would the company have achieved by using the MACRS method instead of the straight-line depreciation method?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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