Your Company Is Considering a New Project That Will Require

question 64

Multiple Choice

Your company is considering a new project that will require $100,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $5,000 using straight-line depreciation. The cost of capital is 14 percent, and the firm's tax rate is 21 percent. Estimate the present value of the tax benefits from depreciation.

• A) $10,406
• B) $14,031
• C) $15,017
• D) $39,147

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Definitions:

Internalize the Externality

The process whereby parties take into account the external costs or benefits of their actions, often through regulatory or market-based mechanisms.

Tragedy of the Commons

A situation in a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting or spoiling that resource.

Excludable

A characteristic of a good or service that means it can be restricted to only those who pay for it; the opposite of a public or non-excludable good.

Rival in Consumption

A characteristic of goods where one individual's consumption prevents or decreases others' ability to consume the same good.