Your Firm Needs a Machine Which Costs $50,000, and Requires

question 48

Multiple Choice

Your firm needs a machine which costs $50,000, and requires $2,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category. Assume a tax rate of 21 percent and a discount rate of 10 percent. What is the depreciation tax shield for this project in year 3?

• A) $1,555.05
• B) $3,291.75
• C) $4,813.25
• D) $5,833.33

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Definitions:

Capital Structure

The mix of different forms of external funds and equity that a company uses to finance its operations and growth.

Debt and Equity

Two of the main ways companies can raise capital; debt involves borrowing money, whereas equity involves selling a stake in the company.

Equity Account

An account that represents the owner's equity or interest in a company, usually comprising investments made by the shareholders and retained earnings.

Compensation Package

The total remuneration, including salary, bonuses, benefits, and any other financial rewards, provided to an employee.