In 1981 Congress introduced the Accelerated Cost Recovery System (ACRS) tax depreciation. ACRS allowed for uniform recovery periods at fixed percentage rates each year. Part of the intent of the law was to encourage businesses to invest in new equipment by allowing faster depreciation. For example, a delivery truck is designated by ACRS as a 3-year property, and the depreciation percentages allowed each year are given in the table below. Year ACRS Depreciation 1 25% 2 38% 3 37%Tax depreciation allows expenses in one year for durable goods, such as a truck, to be allocated and deducted from taxable income over several years. The depreciation percentage refers to percentage of the original expense. For example, if an item costs $10,000, then in the first year 25%, or $2500, is deducted; in the second year 38%, or $3800, is deducted; and in the third year 37%, or $3700, is deducted. In the Tax Reform Act of 1986, the Modified Accelerated Cost Recovery System (MACRS) was mandated. This law designated light trucks, such as delivery trucks, as 5-year property and (curiously) required depreciation over 6 years, as shown in the following table. Year MARCS Depreciation 1 20% 2 32% 3 19.2% 4 11.52% 5 11.52% 6 5.76%Suppose the delivery truck in question costs $11,500. (a) Under either ACRS or MACRS, what is the total depreciation allowed over the life of the truck? Under ACRS only, the total amount of the original expense is recovered eventually. Under MACRS only, the total amount of the original expense is recovered eventually. Under both ACRS and MACRS, the total amount of the original expense is recovered eventually. Under both ACRS and MACRS, the total amount of the original expense is not recovered eventually.(b) Under ACRS, what dollar tax deduction for depreciation on the truck is allowed in each of the first 3 years? (Round your answers to the nearest dollar.) year 1 $ year 2 $ year 3 $ (c) Under MACRS, what dollar tax deduction for depreciation on the truck is allowed in each of the first 3 years? (Round your answers to the nearest dollar.) year 1 $ year 2 $ year 3 $ (d) Suppose your company has a 28% marginal tax rate. That is, a 1 dollar tax deduction results in a reduction of 28 cents in actual taxes paid. Under ACRS, what is the total tax savings due to depreciation of the truck during the second year? (Round your answer to the nearest cent.)

In 1981 Congress introduced the Accelerated Cost Recovery System (ACRS) tax depreciation. ACRS allowed for uniform recovery periods at fixed percentage rates each year. Part of the intent of the law was to encourage businesses to invest in new equipment by allowing faster depreciation. For example, a delivery truck is designated by ACRS as a 3-year property, and the depreciation percentages allowed each year are given in the table below. Year ACRS Depreciation 1 25% 2 38% 3 37%Tax depreciation allows expenses in one year for durable goods, such as a truck, to be allocated and deducted from taxable income over several years. The depreciation percentage refers to percentage of the original expense. For example, if an item costs $10,000, then in the first year 25%, or $2500, is deducted; in the second year 38%, or $3800, is deducted; and in the third year 37%, or $3700, is deducted. In the Tax Reform Act of 1986, the Modified Accelerated Cost Recovery System (MACRS) was mandated. This law designated light trucks, such as delivery trucks, as 5-year property and (curiously) required depreciation over 6 years, as shown in the following table. Year MARCS Depreciation 1 20% 2 32% 3 19.2% 4 11.52% 5 11.52% 6 5.76%Suppose the delivery truck in question costs $11,500. (a) Under either ACRS or MACRS, what is the total depreciation allowed over the life of the truck? Under ACRS only, the total amount of the original expense is recovered eventually. Under MACRS only, the total amount of the original expense is recovered eventually. Under both ACRS and MACRS, the total amount of the original expense is recovered eventually. Under both ACRS and MACRS, the total amount of the original expense is not recovered eventually.(b) Under ACRS, what dollar tax deduction for depreciation on the truck is allowed in each of the first 3 years? (Round your answers to the nearest dollar.) year 1 $ year 2 $ year 3 $ (c) Under MACRS, what dollar tax deduction for depreciation on the truck is allowed in each of the first 3 years? (Round your answers to the nearest dollar.) year 1 $ year 2 $ year 3 $ (d) Suppose your company has a 28% marginal tax rate. That is, a 1 dollar tax deduction results in a reduction of 28 cents in actual taxes paid. Under ACRS, what is the total tax savings due to depreciation of the truck during the second year? (Round your answer to the nearest cent.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Year	ACRS Depreciation
1	25%
2	38%
3	37%

Tax depreciation allows expenses in one year for durable goods, such as a truck, to be allocated and deducted from taxable income over several years. The depreciation percentage refers to percentage of the original expense. For example, if an item costs $10,000, then in the first year 25%, or $2500, is deducted; in the second year 38%, or $3800, is deducted; and in the third year 37%, or $3700, is deducted.

In the Tax Reform Act of 1986, the Modified Accelerated Cost Recovery System (MACRS) was mandated. This law designated light trucks, such as delivery trucks, as 5-year property and (curiously) required depreciation over 6 years, as shown in the following table.

Year	MARCS Depreciation
1	20%
2	32%
3	19.2%
4	11.52%
5	11.52%
6	5.76%

Suppose the delivery truck in question costs $11,500.

(a) Under either ACRS or MACRS, what is the total depreciation allowed over the life of the truck?

Under ACRS only, the total amount of the original expense is recovered eventually.

Under MACRS only, the total amount of the original expense is recovered eventually.

Under both ACRS and MACRS, the total amount of the original expense is recovered eventually.

Under both ACRS and MACRS, the total amount of the original expense is not recovered eventually.

(b) Under ACRS, what dollar tax deduction for depreciation on the truck is allowed in each of the first 3 years? (Round your answers to the nearest dollar.)

year 1	$
year 2	$
year 3	$

(c) Under MACRS, what dollar tax deduction for depreciation on the truck is allowed in each of the first 3 years? (Round your answers to the nearest dollar.)

year 1	$
year 2	$
year 3	$

(d) Suppose your company has a 28% marginal tax rate. That is, a 1 dollar tax deduction results in a reduction of 28 cents in actual taxes paid. Under ACRS, what is the total tax savings due to depreciation of the truck during the second year? (Round your answer to the nearest cent.)
$

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