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rated:
I am confused and I need some help.
I am trying to calculate the NPV and IRR on an investment and I am using MACRS tax table to calculate the depreciation
The problem is my cash flow is 20 year horizon and I supposed to apply only 20 years of revenue expenses and all that.
But the depreciation table MACRS has 21 years. If I apply only 20 years of the table then the total index does not total up to 100% but instead 97.77
So how do you apply 21 years MACRS table to a 20 years cash flow table?
Here is the MACRS table I am talking about
http://i63.tinypic.com/14136yx.jpg


 

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rated:
Did you try asking your TA or professor for help first?

rated:
speedracer714 said:   Did you try asking your TA or professor for help first?
  Well everyone says skip it because it is too small to worry about

But if I wanted to be precise how would you do it? So on the 21st year cash flow zero? And apply depreciation?

rated:
fleetwoodmac said:   
speedracer714 said:   Did you try asking your TA or professor for help first?
  Well everyone says skip it because it is too small to worry about

  You didn't answer speedracer's question.

rated:
you can abandon the asset in year 20 and take loss on abandonment as additional expense. this way you get to 100%

rated:
speedracer714 said:   Did you try asking your TA or professor for help first?
  are you implying this doesn't occur IRL?

rated:
fleetwoodmac said:   
speedracer714 said:   Did you try asking your TA or professor for help first?
  Well everyone says skip it because it is too small to worry about

But if I wanted to be precise how would you do it? So on the 21st year cash flow zero? And apply depreciation?

  If calculating on a 20 year timeframe but the asset has a longer useful life, wouldn't you use the expected residual value after 20 years to establish the cost of using it for those 20 years?

rated:
Just so you understand what's happening --

Under MACRS, tangible property is generally depreciated using a half-year convention, i.e., regardless of actual placed-in-service date, property is assumed to be placed in service at midpoint of tax year.  So, for 20 year property, you actually take depreciation deductions over 21 tax years.

In certain situations, you are required to use a mid-quarter convention.  The table percentages are different, but you still end up depreciating over 21 tax years.

rated:
tuphat said:   Just so you understand what's happening --

Under MACRS, tangible property is generally depreciated using a half-year convention, i.e., regardless of actual placed-in-service date, property is assumed to be placed in service at midpoint of tax year.  So, for 20 year property, you actually take depreciation deductions over 21 tax years.

In certain situations, you are required to use a mid-quarter convention.  The table percentages are different, but you still end up depreciating over 21 tax years.


I understand

But how do I apply 21 year table to a 20 year cash flow?

rated:
fleetwoodmac said:   tuphat said:   Just so you understand what's happening --

Under MACRS, tangible property is generally depreciated using a half-year convention, i.e., regardless of actual placed-in-service date, property is assumed to be placed in service at midpoint of tax year.  So, for 20 year property, you actually take depreciation deductions over 21 tax years.

In certain situations, you are required to use a mid-quarter convention.  The table percentages are different, but you still end up depreciating over 21 tax years.


I understand


No, you don't. This post answers your question.

rated:
^^
what they said.

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