Chapter 16, Problem 33E

Sharpe Machining Company purchased industrial tools costing $100,000, which fall in the 3-year property class under MACRS.

Required:

1. 1. Prepare a schedule of depreciation deductions assuming:
   1. a.      The firm uses the accelerated depreciation schedule specified by MACRS.
   2. b.      The firm uses the optional straight-line depreciation method and the half-year convention.
2. 2. Calculate the present value of the depreciation tax shield under each depreciation method listed in requirement (1). Sharpe Machining Company’s after-tax hurdle rate is 12 percent, and the firm’s tax rate is 30 percent.