Troy Industries purchased a new machine 4 year(s) ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the schedule attached. Assume 21% ordinary and capital gains tax rates. 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: $96,000; $56,000; $13,600; and $9,500.
Troy Industries purchased a new machine 4 year(s) ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the schedule attached. Assume 21% ordinary and capital gains tax rates. 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: $96,000; $56,000; $13,600; and $9,500.
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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Troy Industries purchased a new machine 4 year(s) ago for $80,000.
It is beingdepreciated under MACRS with a 5-year recovery period using the schedule attached.
Assume
It is being
Assume
21% ordinary and capital gains tax rates.
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: $96,000; $56,000; $13,600; and $9,500.
Transcribed Image Text:**Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes**
| Recovery Year | 3 years | 5 years | 7 years | 10 years |
|---------------|---------|---------|---------|----------|
| 1 | 33% | 20% | 14% | 10% |
| 2 | 45% | 32% | 25% | 18% |
| 3 | 15% | 19% | 18% | 14% |
| 4 | 7% | 12% | 12% | 12% |
| 5 | | 12% | 9% | 9% |
| 6 | | 12% | 9% | 9% |
| 7 | | 9% | 9% | 8% |
| 8 | | 9% | 9% | 7% |
| 9 | | 4% | 4% | 6% |
| 10 | | | | 6% |
| 11 | | | | 6% |
| Totals | 100% | 100% | 100% | 100% |
*Note: 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 (200%) depreciation using the half-year convention.*
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