This exercise uses the assumed Fast Delivery data from Short Exercise 7-4. Assume Fast Delivery is trying to decide which depreciation method to use for income tax purposes. The company can choose from among the following methods: (a) straight-line, (b) units of production, or (c) double-declining-balance.

1. Which depreciation method offers the tax advantage for the first year? Describe the nature of the tax advantage.

2. How much income tax will Fast Delivery save for the first year of the airplane’s use under the method you just selected as compared with using the straight-line depreciation method? The income tax rate is 36%. Ignore any earnings from investing the extra cash.