Question

Asked Dec 9, 2019

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Your Company is considering a new project that will require $10,000 of new equipment at the start of the project. The equipment will have a depreciable life of 5 years and will be depreciated to a book value of $3,000 using straight-line depreciation. The cost of capital is 9%, and the firm's tax rate is 21%. Estimate the present value of the tax benefits from depreciation.

Multiple Choice

A. $294

B. $1,106

C. $1,400

D. $1,144

1 Rating

Step 1

Given that:

Cost of new equipment is $10,000

Salvage value $3,000

Useful life (depreciable life) is 5 years

With the given information we need to determine presennt value of the tax benefits from depreciation

Step 2

Step 3

So, the annual tax savings on de...

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