Question

A construction company is purchasing a new Tractor for over the road use. The IRS classifies this as 3-year property. The truck costs $280000.

a) Determine the depreciation allowance for each year using SLN method.

Year 1 $

Year 2 $

Year 3 $

Year 4 $

b) Determine the depreciation allowance for each year using DDB method.

Year 1 $

Year 2 $

Year 3 $

Year 4 $

c) Determine the depreciation allowance for each year using MACRS.

Year 1 $

Year 2 $

Year 3 $

Year 4 $

d) Using a 10% MARR calculate the present worth of the depreciation for each of the 3 methods above.

PWa = $

PWb = $

PWc = $

Answer 1

Price of Truck $280000

A.Using SLM depreciation life of asset = 4 yr

Depriciation = $280000/4 yr = $70000/yr

1yr; Depreciation = $ 70000/yr

2yr Depreciation = $70000/yr

3yr; Depreciation = $70000/yr

4 yr; Depreciation = $ 70000 / yr.

B. Double Declining Balance: under this method the depreciation is double of the SLM. For example if under SLM depreciation is $10000 / year then under DDB it would be $20000/ year.

Using the previous calculation we can easily find the DDB.

1 yr; DDB = 2×70000 = $ 140000

2yr ; DDB = $(280000-140000)×(2×0.25) = $70000

3yr ; DDB = $(140000-70000)×(2×0.25) = $35000

4yr; DDB = 35000 ×0.5 = $17500

C. Calculation of MACRS

Year	MACRS	Depriciation
1	33.33	280000×0.3333= $93324
2	44.45	280000×0.4445= $124460
3	14.81	280000×0.1481 = $41468
4	7.41	280000× 0.0741 = $ 20748

D. Present Value

= $221890

= $223372

= $ 233026