Question

The cost of a new machine is $220,000. The cost of shipping is $10,000, and installation is $20,000. The required working capital is $25,000. Using the 3-year MACRS schedule, determine the depreciation expense in year 2. Round to the nearest penny.

a) $44,000.00

b) $52,800.00

c) $79,200.00

d) $88,000.00

Answer 1

Using the 3-year MACRS schedule, the depreciation expense for a new machine with a total cost of $250,000 in the second year, calculated at 32%, is $80,000.00.

Step-by-step explanation:

The task is to calculate the depreciation expense in the second year for a new machine using the 3-year MACRS schedule. The total cost of the machine includes its purchase price, shipping, and installation costs, making the depreciable base $250,000 ($220,000 + $10,000 + $20,000). Under the 3-year MACRS schedule, the depreciation rate for the second year is 32%. Thus, the depreciation expense for year 2 is:

$250,000 (total depreciable base) × 0.32 (year 2 MACRS rate) = $80,000.

Therefore, rounding to the nearest penny, the depreciation expense for the second year is $80,000.00, which is not one of the provided options.