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17 October, 16:54

Dependable Motors just purchased some MACRS 5-year property at a cost of $216,000. The MACRS rates are. 2,.32, and. 192 for years 1 to 3, respectively. Which one of the following will correctly give you the book value of this equipment at the end of year 2? A) $216,000 / (1 +.2 +.32) B) $216,000 * (1 -.2 -.32) C) $216,000 * (.20 +.32) D) [$216,000 * (1 -.20) ] * (1 -.32) E) $216,000 / [ (1 +.20) (1 +.32) ]

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  1. 17 October, 20:43
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    The correct answer is option B.

    Explanation:

    The Cost of Property is given at $ 216,000.

    The MACRS rates are 0.2, 0.32 and 0.192 for years 1 to 3 respectively.

    Depreciation for the year 1 will be

    = $216,000*0.2

    = $43,200

    Depreciation for the year 2 will be

    =$216,000*0.32

    =$69,120

    Total Depreciation for the year 1 and 2 will be

    =$43,200+$69,120

    =$112,320

    The book value of this equipment at the end of year 2

    =$216,000-$112,320

    =$103,680

    On checking the above value with Answer B that is

    =$216,000 * (1-0.2-0.32)

    =$216,000*0.48

    =$103,680
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