Determine the present worth of the depreciation of the system
Microeconomics
Your civil engineering consulting firm is going to purchase a new computer-aided design (CAD) system at a cost of $100,000. The CAD system will have no salvage value at the end of its useful life of 5 years. Your company’s income, minus allowable expenses, is about $300,000 per
year, and your tax rate is 50%. You expect a rate-of-return of 10% on your purchase of the CAD system. Compare the present worth of the depreciation of the system using: (1) straight-line depreciation and (2) Modified Accelerated Cost Recovery System (MACRS). (Note: The
present worth of the depreciation is the present value of the money you will save on your taxes by accounting for the depreciation.)
