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AmSouth, Inc., bought a machine for $50,000 on January 2, 2004. Management expects to use the machine for 10 years, at the end of which time it will have a $1,000 salvage value. Consider the following questions independently:
(a) If AmSouth uses straight-line depreciation, what will be the book value of the machine on December 31, 2007?
(b) If AmSouth uses double-declining-balance depreciation, what will be the depreciation expense for 2007?
(c) If AmSouth uses double-declining-balance depreciation, followed by switching to straight-line depreciation, when will be the optimal time to switch?
(d) If Ansouth uses 7-year MACRS and sells the machine on April 1, 2007, at a price of $30,000, what will be the taxable gains?
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