Depreciation Tax Shields Lincoln Company has purchased equipment for $500,000. After it is fully depreciated, the equipment will have no salvage value. Lincoln may select either of the following depreciation schedules for tax purposes: Option 1 Option 2 Year Depreciation Depreciation 1 $100,000 $50,000 2 160,000 100,000 3 96,000 100,000 4 57,600 100,000 5 57,600 100,000 6 28,800 50,000 Assuming a 40% tax rate and a 12% desired annual return, compute the total present value of the tax savings provided by these alternative depreciation tax shields. Round answers to the nearest whole number. Use rounded answers to calculate total. Option 1 depreciation: Year (N) Tax Savings (FV) Present Value 1 Answer Answer 2 Answer Answer 3 Answer Answer 4 Answer Answer 5 Answer Answer 6 Answer Answer Answer Option 2 depreciation: Year (N) Tax Savings (FV) Present Value 1 Answer Answer 2 Answer Answer 3 Answer Answer 4 Answer Answer 5 Answer Answer 6 Answer Answer Answer
Depreciation Tax Shields Lincoln Company has purchased equipment for $500,000. After it is fully depreciated, the equipment will have no salvage value. Lincoln may select either of the following depreciation schedules for tax purposes: Option 1 Option 2 Year Depreciation Depreciation 1 $100,000 $50,000 2 160,000 100,000 3 96,000 100,000 4 57,600 100,000 5 57,600 100,000 6 28,800 50,000 Assuming a 40% tax rate and a 12% desired annual return, compute the total present value of the tax savings provided by these alternative depreciation tax shields. Round answers to the nearest whole number. Use rounded answers to calculate total. Option 1 depreciation: Year (N) Tax Savings (FV) Present Value 1 Answer Answer 2 Answer Answer 3 Answer Answer 4 Answer Answer 5 Answer Answer 6 Answer Answer Answer Option 2 depreciation: Year (N) Tax Savings (FV) Present Value 1 Answer Answer 2 Answer Answer 3 Answer Answer 4 Answer Answer 5 Answer Answer 6 Answer Answer Answer
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Depreciation Tax Shields
Lincoln Company has purchased equipment for $500,000. After it is fully
| Option 1 | Option 2 | |
|---|---|---|
| Year | Depreciation | Depreciation |
| 1 | $100,000 | $50,000 |
| 2 | 160,000 | 100,000 |
| 3 | 96,000 | 100,000 |
| 4 | 57,600 | 100,000 |
| 5 | 57,600 | 100,000 |
| 6 | 28,800 | 50,000 |
Assuming a 40% tax rate and a 12% desired annual return, compute the total present value of the tax savings provided by these alternative depreciation tax shields.
Round answers to the nearest whole number. Use rounded answers to calculate total.
Option 1 depreciation:
| Year (N) |
Tax Savings (FV) |
Present Value |
|---|---|---|
| 1 | Answer
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| 2 | Answer
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Option 2 depreciation:
| Year (N) | Tax Savings (FV) | Present Value |
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| 1 | Answer
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| 2 | Answer
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| 3 | Answer
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| 6 | Answer
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