The five-year macrs tax depreciation schedule

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Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $520,000. Of this sum, $62,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible first-year deductible expense or as a capital investment. In the latter case, the company could depreciate the $62,000 using the five-year MACRS tax depreciation schedule.

Assume the tax rate is 35% and the opportunity cost of capital is 7%. Calculate the value of the tax shield 1 and tax shield 2. (Note: Use Tax shield 1 as an expense treatment and tax shield 2 as 5 year MACRS.) (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Reference no: EM13292127

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