Question

In: Finance

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7...

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

MACRS

Depreciation Rate

?14.29%

?24.49%

?17.49%

?12.49%

?8.93%

?8.92%

?8.93%

?4.46%

Massive? Amusements, an owner of theme? parks, invests $ 60 million to build a roller coaster. This can be depreciated using the MACRS schedule shown above. How much less is the depreciation tax shield for year 4 under MACRS depreciation than under? 7-year, straight-line? depreciation, if the tax rate is 35?%?

Solutions

Expert Solution

Depreciation tax shield for year 4 under MACRS depreciation and straight line method for first four year is calculated in excel and screen shot provided below:

In year 4, Depreciation tax shield under Straight line method = $3,000,000

In year 4, Depreciation tax shield under MACRS Method = $2,622,900.

Less Depreciation tax shield = $3,000,000 - $2,622,900

= $377,100

$377,100 less is the depreciation tax shield for year 4 under MACRS depreciation than under? 7-year, straight-line? depreciation


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