Engineering Economy: A laser surgical tool has a cost basis of $300,000 and a seven-year depreciable...

Engineering Economy:

A laser surgical tool has a cost basis of $300,000 and a seven-year depreciable life. The estimated salvage value of the laser is $30,000 at the end of seven years. Determine the annual depreciation amounts using the straight-line method versus MACRS GDS. Unfortunately, the equipment does not qualify for 100% bonus depreciation.

a. Tabulate the annual depreciation amounts and the book value of the laser at the end of each year.

b. If the tool is sold after six years of depreciation at market value how much would the capital gain or loss be?

Expert Solution

Straight Line=> (Cost - salvage value)/number of years

Depreciation: (300,000 - 30,000)/7 => 38,571

Year	WDV before deprecition	Depreciation	WDV after depreication
1	300,000	38,571	261,429
2	261,429	38,571	222,857
3	222,857	38,571	184,286
4	184,286	38,571	145,714
5	145,714	38,571	107,143
6	107,143	38,571	68,571
7	68,571	38,571	30,000

MACRS 7 YEARS:

By refering to thr macr 7 years table, we get

Year	WDV before deprecition	MACRS RATE	Depreciation	WDV after depreication
1	300,000	14.29	42,870	257,130
2	257,130	24.49	73,470	183,660
3	183,660	17.49	52,470	131,190
4	131,190	12.49	37,470	93,720
5	93,720	8.93	26,790	66,930
6	66,930	8.92	26,760	40,170
7	40,170	8.93	26,790	13,380
8	13,380	4.46	13,380	-

b. Since the question does not specify the amount of market value,

Under SLM, if the asset is sold for more than $ 68,571, then there is capital gains, if not we incurr losses.
Under MACRS, if the asset is sold for more than $ 40,170, then there is capital gains, if not we incurr losses.

ekkarill92 answered 2 years ago

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