Danville Company is contemplating whether to use MACRS depreciation or straight-line depreciation for a plant asset.The following information is available:
$\begin{array}{llll}
&\text { MACRS } & \text { Straight-line } & \text { Present Value of } \
&\text { Depreciation } & \text { Depreciation } & \text { One At } 12 \%\
\text { Year 1 } & \$ 13,333 & \$ 10,000 & 0.8929 \
\text { Year 2 } & \$ 17,780 & \$ 10,000 & 0.7972 \
\text { Year 3 } & \$ 5,924 & \$ 10,000 & 0.7118 \
\text { Year 4 } & \$ 2,964 & \$ 10,000 & 0,6355
\end{array}$
Assume the tax rate is 40%.Over the four years examined,what is the present value of the difference in tax savings between MACRS depreciation and straight-line depreciation?

Question

Quizplus · Accepted Answer

The present value of the difference in tax savings between MACRS depreciation and straight-line depreciation is $722. This is calculated by taking the difference in tax savings for each year and multiplying it by the present value of one at 12% for that year. The tax savings for each year is calculated by multiplying the depreciation expense by the tax rate. The present value of one at 12% for each year is given in the table.

Danville Company Is Contemplating Whether to Use MACRS Depreciation or Straight-Line