Suppose That a Project Has a Depreciable Investment of $1,000,000

question 57

Multiple Choice

Suppose that a project has a depreciable investment of $1,000,000 and falls under the following MACRS year 5 class depreciation schedule:
Year 1: 20 percent; year 2: 32 percent; year 3: 19.2 percent; year 4: 11.5 percent; year 5: 11.5 percent; and year 6: 5.8 percent.
Calculate the depreciation tax shield for year 2 using a tax rate of 30 percent.

• A)$224,000
• B)$60,000
• C)$96,000
• D)$300,000

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Definitions:

Repairs

Expenditures to maintain the operational status of assets, rather than to improve or extend their life.

Office Equipment

Tangible items such as computers, desks, and chairs used to facilitate operations in a corporate office setting.

Land

A natural resource not man-made, referring to the earth's surface extending downward to the center of the earth and upward to infinity, including permanently attached natural objects.

Purchase Price

The amount of money that is paid to acquire a good, service, or asset.