Perez Corporation recently purchased a $1,200,000 asset that has a three-year service life and no salvage value. The company is subject to a 30% income tax rate and employs a 12% after-tax hurdle rate in capital investment decisions.
Management is studying whether to depreciate the asset by using the straight-line method or the Modified Accelerated Cost Recovery System (MACRS). Assume that the following MACRS factors are in effect: year 1, 33%; year 2, 45%; year 3, 15%; and year 4, 7%
Required:
A. Calculate the total depreciation expense that Perez will record under each method.
B. Calculate the total tax savings that will occur with each method.
C. On the basis of your calculations in part "B," which of the two methods will management likely prefer? Explain your answer.
D. Compute the present value of the tax savings for each method, rounding to the nearest dollar.

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The Answer of Perez Corporation recently purchased a $1,200,000 asset that has a three-year service life and no salvage value. The company is subject to a 30% income tax rate and employs a 12% after-tax hurdle rate in capital investment decisions.
Management is studying whether to depreciate the asset by using the straight-line method or the Modified Accelerated Cost Recovery System (MACRS). Assume that the following MACRS factors are in effect: year 1, 33%; year 2, 45%; year 3, 15%; and year 4, 7%
Required:
A. Calculate the total depreciation expense that Perez will record under each method.
B. Calculate the total tax savings that will occur with each method.
C. On the basis of your calculations in part "B," which of the two methods will management likely prefer? Explain your answer.
D. Compute the present value of the tax savings for each method, rounding to the nearest dollar.

Perez Corporation Recently Purchased a $1,200,000 Asset That Has a Three-Year