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

question 101

Multiple Choice

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?

• A) $722
• B) $1,806
• C) $2,976
• D) $9,178

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