Thanks Angel for your help.
On Sun, Jul 28, 2013 at 6:07 PM, Angel Secerio
wrote:
>
> Muzahir,
>
> The MACRS depreciation method is actually double-declining balance (DDB)
> method, and that's what I have shown in how the MACRS rates have been
> derived from. The "1/3 X 2" depreciation rate, or simply 2/3, is to be
> applied against the previous period's written down value. If you follow the
> formula I have shown you will note that the year's depreciation is WDV X
> 2/3.
>
> What you have assumed and showed in your recent post is you have followed
> the straight line method.
>
>
> -------------------------------------------
> Angel Secerio CMA, CPA
> Director/Manager
> Insights Financial Review Services Inc
> Makati City
> Philippines
> -------------------------------------------
>
>
>
>
>
> -------------------------------------------
> Original Message:
> Sent: 07-28-2013 02:58 AM
> From: Muzahir Agha
> Subject: MACRS Question
>
> Dear Angel
>
> Thanks for reply, this is the question for which i sent you a message,
> but the link didn't worked.
>
> So one thing is clear, that to solve the question we will work on the 4
> years percentages given in question.
>
> Secondly how these percentages are calculated, this seems to be
> interesting, as a regular 3 year plan it should be
>
> year %age
> 1 33.33%
> 2 33.33%
> 3 33.34%
>
> But as per your explanation, i understood for First year it is the same
> which is as a normal situation. But rest of the 3 years calculation i
> didn't understand. Although it's half year convention, but in reality it's
> not equally distributed. it could have been as per my assumption
>
> 1 16.66%
> 2 33.34%
> 3 33.34%
> 4 16.66%
>
> Thanks and Regards for you feedback.
>
> -------------------------------------------
> Muzahir Agha
>
> -------------------------------------------
>
>
>
>
>
> -------------------------------------------
> Original Message:
> Sent: 07-27-2013 03:42 PM
> From: Angel Secerio
> Subject: MACRS Question
>
> Muzahir ... (Is this what you were asking me?)
>
> The table shown is actually not 4 years, but 3 years in total. The Year 1
> depreciation corresponds to ½ year's depreciation rate, Years 2 and 3 are
> full year's depreciation, while Year 4 accounts for the remaining ½ year's
> depreciation for a total of 3 years. This is called the half-year
> convention under the U.S. tax laws which require that a part of the first
> year's depreciation be recognized in the year of acquisition, while a
> portion of the last year's depreciation be taken up in the terminal year of
> the capital asset.
>
> Here is the mathematical derivation of the rates:
>
> Year 1: 33.33% {[(1/ 3) X 2] X ½}
> Year 2: 44.44% {[(100% - 33.33%)/3] X 2}
> Year 3: 14.81% {[(100% - 33.33% - 44.44%)/3] X 2}
> Year 4: 7.41% (100% - 33.33% - 44.44% - 14.81%)
>
> The answer to the Kratz problem rounded to the nearest thousands is
> choice C, $283,000.
>
> Fred Kratz Problem
>
> NPV of Depreciation Tax Shield
>
>
> 40% Rate 20%
> NPV Year
> Cost MACRS Depreciation Tax
> Shield PV Rate Tax Shield
> 1 1,000,000 33.33%
> 333,300 133,320 0.8333 111,100
> 2 1,000,000 44.44%
> 444,400 177,760 0.6944
> 123,444
> 3 1,000,000 14.81%
> 148,100 59,240 0.5787 34,282
> 4 1,000,000 7.41%
> 74,100 29,640 0.4823
> 14,294
> NPV
> of Depreciation Tax Shield 283,121
>
> -------------------------------------------
> Angel Secerio CMA, CPA
> Director/Manager
> Insights Financial Review Services Inc
> Makati City
> Philippines
> -------------------------------------------
>
>
>
>
>
> -------------------------------------------
> Original Message:
> Sent: 07-25-2013 09:29 AM
> From: Muzahir Agha
> Subject: MACRS Question
>
> This message has been cross posted to the following Discussions: CMA
> Study Group and Answer Exchange P2P Support .
> -------------------------------------------
> Hello
>
> Please help me solving the question in attachment it would be great.
> Plus, i understand, that in Capital Budgeting questions which involve
> MACRS, we will follow it but in this question and few others i noticed that
> Question says: the Rates for 3 year are below and they give rates for 4
> years like below and as in question, so what does it means.
>
> Year Rate
> 1 33.33%
> 2 44.45%
> 3 14.81%
> 4 7.41%
>
>
> -------------------------------------------
> Muzahir Agha
> Dubai.
> -------------------------------------------
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