Troy Industries purchased a new machine 3 years ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the percentages given in Table 4.2. Assume a 40% tax rate. a. What is the book value of the machine?
Troy Industries purchased a new machine 3 years ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the percentages given in Table 4.2. Assume a 40% tax rate. a. What is the book value of the machine?
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
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![Troy Industries purchased a new machine 3 years ago
for $80,000. It is being depreciated under MACRS with
a 5-year recovery period using the percentages given
in Table 4.2. Assume a 40% tax rate.
a. What is the book value of the machine?
b. Calculate the firm's tax liability if it sold the machine
for each of the following amounts: $100,000; $56,000;
$23,200; and$15,000.
Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes
TABLE 4.2
Percentage by recovery year
5 ycars
Recovery year
3 ycars
7 years
10 ycars
1
33%
20%
14%
10%
45
32
25
18
3
15
19
18
14
12
12
12
12
9.
8.
7
9.
8.
4
9.
6.
10
6.
11
4
Totals
100%
100%
100%
100%
These percentages have been rounded to the nearest whole percent to simplify calculations while retaining
realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded
percentages or directly apply double-declining balance depreciation using the half-year convention.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcf9802e0-ad47-451e-b663-4d5cf5ca53a2%2Fa91a1d55-6b0c-4425-9b49-912498306a72%2Fa894x2s_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Troy Industries purchased a new machine 3 years ago
for $80,000. It is being depreciated under MACRS with
a 5-year recovery period using the percentages given
in Table 4.2. Assume a 40% tax rate.
a. What is the book value of the machine?
b. Calculate the firm's tax liability if it sold the machine
for each of the following amounts: $100,000; $56,000;
$23,200; and$15,000.
Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes
TABLE 4.2
Percentage by recovery year
5 ycars
Recovery year
3 ycars
7 years
10 ycars
1
33%
20%
14%
10%
45
32
25
18
3
15
19
18
14
12
12
12
12
9.
8.
7
9.
8.
4
9.
6.
10
6.
11
4
Totals
100%
100%
100%
100%
These percentages have been rounded to the nearest whole percent to simplify calculations while retaining
realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded
percentages or directly apply double-declining balance depreciation using the half-year convention.
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