A piece of machinery purchased at a cost of $50,000 has an estimated salvage value of 20%

Question:

A piece of machinery purchased at a cost of $50,000 has an estimated salvage value of 20% of the first cost and service life of 5 years and is depreciated using MACRS.

a) Prepare the MACRS annual depreciation schedule and book values.

b) Compare the book values for MACRS depreciation and classical straight-line depreciation over 5 years.

c) Plot the book values, using a spreadsheet.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...