The new production equipment depreciable basis is $522,000.

The equipment will be depreciated over the life of a 6 yr contract on a straight-line basis for book purposes, as the contract will not be renewed and sales volume will go back to current levels making the equipment useless to the company at that point. Manufacturing equipment has a seven-year life for tax purposes. At the end of the project, it is estimated that the equipment can be sold for 20% of its original cost. The company’s marginal tax rate is 34% and its reinvestment rate is 12%. What is the equipment’s depreciation amount per year during the life of the contract, using the straight line basis?

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