Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 20

A plant manager for a large cable company knows that the remaining invested value of certain types of manufacturing equipment is more closely approximated when the equipment is depreciated linearly by the SL method compared to a rapid write-off method such as MACRS. Therefore, he keeps two sets of books, one for tax purposes (MACRS) and one for equipment management purposes (SL). For an asset that has a first cost of $80,000, a depreciable life of 5 years, and a salvage value equal to 25% of the first cost, determine the difference in the book values shown in the two sets of books at the end of year 4.