Keyser Mining Is Considering a Project That Will Require the Purchase

question 32

Multiple Choice

Keyser Mining is considering a project that will require the purchase of $479,000 of equipment. The equipment will be depreciated straight-line to a zero book value over the five-year life of the project after which it will be worthless. The required return is 12 percent and the tax rate is 30 percent. What is the value of the depreciation tax shield in Year 4 of the project assuming no bonus depreciation is taken?

• A) $28,740
• B) $32,200
• C) $78,600
• D) $138,400
• E) $143,700

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Definitions:

Alcoholic Fermentation

A biological process by which sugars such as glucose, fructose, and sucrose are converted by yeast or bacteria into cellular energy, producing ethanol and carbon dioxide as side products.

Acetaldehyde

A volatile, flammable, and colorless liquid compound, which is a common intermediate in the synthesis of various chemicals and a byproduct of alcohol metabolism.

NADH

Nicotinamide adenine dinucleotide (NADH) is a coenzyme found in all living cells, involved in redox reactions, carrying electrons from one reaction to another.

Ethanol

A volatile, flammable, colorless liquid alcohol widely used as a biofuel, in alcoholic beverages, and as a solvent in the pharmaceutical industry.