Peter Pontificator Is Proposing to Purchase a Paddle Machine,which

question 8

Multiple Choice

Peter Pontificator is proposing to purchase a paddle machine,which will cost $5 million,last ten years and have a salvage value of $80,000.Given a tax rate of 21%,and a cost of capital of 8%: What is the present value of the tax shield if straight-line depreciation is used?

• A)$600,000
• B)$643,234
• C)$745,671
• D)$693,286
• E)None of the above

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Definitions:

Overhead Efficiency

Measures how well a company or organization utilizes its overhead expenses to produce goods or provide services.

Fixed Overhead Budget

A plan that outlines the expected fixed costs of operating a business or manufacturing a product, which do not change with production volume or sales levels.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to products or job orders, based on a chosen activity base such as direct labor hours.

Variable Component

A part of a cost or expense that varies directly with the level of output or activity.