Van Meter Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes:
-Van Meter plans to use MACRS and keep the production equipment for seven years.(Round amounts to dollars.)
The tax savings from depreciation in Year 3 would be

Question

Van Meter Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes:  
-Van Meter plans to use MACRS and keep the production equipment for seven years.(Round amounts to dollars.)
The tax savings from depreciation in Year 3 would be

Quizplus · Accepted Answer

To calculate the tax savings from depreciation in Year 3, we need to use the MACRS depreciation schedule. Based on the given information, the computer equipment is 5-year property, which falls under the MACRS schedule for 5-year property.

Using the MACRS schedule, we can calculate the depreciation for each year:

Year 1: 20% = $200,000 
Year 2: 32% = $320,000 
Year 3: 19.2% = $192,000 
Year 4: 11.52% = $115,200 
Year 5: 11.52% = $115,200 
Year 6: 5.76% = $57,600 
Year 7: 2.88% = $28,800

Therefore, the tax savings from depreciation in Year 3 would be $192,000.

Note: The tax savings from depreciation is calculated by multiplying the depreciation expense by the company's tax rate. As the tax rate is not given in the question, we cannot calculate the exact tax savings.

Van Meter Company Is Considering the Purchase of the Following