Joshua Company will purchase a van for $40,000.It will have a depreciable life of 5 years and no terminal salvage value.Assume a tax rate of 20% and a required after-tax rate of return of 12%.The present value of the after-tax saving from depreciation in year 2, if an accelerated method is used of twice the straight-line rate), is _____.

Question

Quizplus · Accepted Answer

The depreciation expense in year 2 using the double declining balance method on a $40,000 asset with a 5-year life is $12,800 (40,000 * 2/5 * 1/2, since it's the second year and we adjust for the accelerated method). The after-tax savings from this depreciation would be the depreciation expense times the tax rate, so $12,800 * 20% = $2,560. To find the present value of this after-tax saving, we need to discount it back to the present value using the after-tax rate of return of 12%. However, without the specific formula or table values provided for the calculation of present value, we cannot determine the exact present value from the options given. Therefore, the correct answer is that none of the provided answers is correct, as we cannot accurately calculate the present value with the information given.

Joshua Company Will Purchase a Van for $40,000