Appendix 9A
Taxes and Depreciation
APPENDIX 9A
DEPRECIATION
ANSWER TO QUESTION:
1. MACRS depreciation would be preferred over straight-line depreciation because it results in
the deferment of tax payments, which are a cash outflow.
SOLUTIONS TO PROBLEMS:
1. a. Basis for depreciation: $20,000
Year MACRS Rate Depreciation
1 14.29% $2,858
2 24.49 4,898
3 17.49 3,498
2. Basis for depreciation = $20,000*
*Expected salvage value is not considered under the MACRS system of
depreciation.
Year MACRS Rate Depreciation
1 20.00% $4,000
9A-“
Appendix 9A
Taxes and Depreciation
3. Basis for depreciation = $150,000
Year MACRS Rate Depreciation
1 14.29% $21,435
2 24.49 36,735
3 17.49 26,235
Year Depreciation Rate Depreciation Amount
1 0.5342% $534*
* ($100,000/39)(2.5/12)
9A-“
Appendix 9A
Taxes and Depreciation
5. Basis for depreciation = $50,000. (Expected salvage value has no impact
on MACRS depreciation.)
Year MACRS Rate Depreciation
1 14.29% $7,145
2 24.49 12,245
3 17.49 8,745
9A-“