Pavlovich Instruments, Inc., a maker of precision telescopes, expects to report pre-tax income of $430,000 this year. The company's financial manager is considering the timing of a purchase of new computerized lens grinders. The grinders will have an installed cost of $80,000 and a cost recovery period of 5 years. They will be depreciated using the MACRS schedule. The tax rate is 34%.

a. If the firm purchases the grinders before year end, what depreciation expenses will it be able to claim this year?

b. If the firm reduces its reported income by the amount of the depreciation expense calculated in part a, what tax savings will result?

Answer rating: 100% (QA)

a Depreciation 800005 16000 year b EBIT ... View the full answer