Precision Financial Calculator

Example 2-1 Depreciation Calculation

You plan to buy a computer network system for a value of $100,000 for your business use. You know that this property under IRS tax laws is within the 5-year property class using double-declining switching to straight-line method. You plan to install the system in June this year. And you would like to use Mid-Quarter convention. You would like to know how much you can 'save' for your tax return from the depreciations for the first two years. At the end of the project you estimate you can sell the equipment for $10,000. How do you handle these proceeds in your project DCFROR analysis?

[Answer: $25,000 for the first year. $30,000 for the second year. ]


Go to the Depreciation calculator tab. Since you are using IRS's MACRS depreciation method, select MACRS tab. Enter 100,000 to the Cost of Asset box. Select By Class tab and select 5-Year property from the drop-down list box. Select Mid-Quarter convention from the Convention drop-down list box. The Place in Service Quarter drop-down list box will pop up the available quarters. Select 2Q. Select Value from the option box. You will see the depreciation results.
For the income tax bracket of 40%, you save $10,000 and $12,000 for the first two respective years. When you sell the property at the end, it's your income.


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