Question: R K Boats Inc has just installed a new hydraulic lift
R.K. Boats Inc. has just installed a new hydraulic lift system which is being categorized as a 5-year class-life asset under MACRS. The total purchase cost plus installation amounted to $750,000. RKB has always used straight-line depreciation in the past, but their accountant is pushing the owner to use the MACRS rates this time around. The owner seems to think that it really doesn’t matter since the total depreciation under each method will still sum up to $750,000 and be spread over 6 years with the application of the “half-year” convention. Do you agree with the owner? Please explain by making the appropriate calculations. RKB’s hurdle rate is 10% and its marginal tax rate is 30%.
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