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antoniya [11.8K]
3 years ago
8

Suppose that a project has a depreciable investment of $600,000 and falls under the following accelerated depreciation schedule

for tax purposes (standard linear depreciation in the books): year 1: 20 percent; year 2: 32 percent; year 3: 19.2 percent; year 4: 11.5 percent; year 5: 11.5 percent; and year 6: 5.8 percent. Tax rate is 35%. Calculate the annual depreciation schedule and depreciation tax-shield.
Business
1 answer:
Alex3 years ago
6 0

Solution :

Depreciation rates   16.67%      16.67%    16.67%     16.67%      16.67%      16.67%

(books)

Depreciation        $100000  $100000 $100000  $100000  $100000  $100000

(books)

Depreciation        $35000    $35000    $35000   $35000   $35000  $35000

tax shield (books)

Depreciation rate   20%            32%         19.20%      11.50%      11.50%     5.80%

(tax)

Depreciation       $120000  $192000   $115200  $69000  $69000  $34800

(tax)

Depreciation     $42000   $67200      $40320    $24150     $24150   $12180

tax shield (tax)

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Devon invested $10,500 in three different mutual funds. A fund containing large cap stocks made a 6.7% return in 1 yr. A real es
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Let:

x = Amount invested in a fund containing large cap stocks = 4 * y = 4y

y = Amount invested in a real estate fund

z = Amount invested in a bond fund =

For total amount invested, we have:

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Therefore, we have:

4y + y + z = $10,500

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From equation (1), we have:

z = 10,500 - 5y …………………….(2)

Also, for the net returns, we have:

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0.112y + 0.049(10,500 - 5y) = 315

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Amount invested in a real estate fund = $1,500

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Checking this, we have:

Total amount invested = $6,000 + $1,500 + $3,000 = $10,500

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