Southport Company Is Considering the Purchase of a Piece of Equipment

question 4

Multiple Choice

Southport Company is considering the purchase of a piece of equipment that costs $100,000.The equipment would be depreciated on a straight-line basis to its expected salvage value of $10,000 over its 10-year useful life.Assuming a tax rate of 40%,what is the annual amount of the depreciation tax shield provided by this investment?

• A) $4,000
• B) $9,000
• C) $3,600
• D) None of these answers is correct.

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Definitions:

Slope

In the context of economics, it often refers to the rate of change or inclination of a curve or line, indicating the relationship between two variables.

Budget Line

A visual depiction of every combination of two items that a buyer can afford with a specific budget at constant prices.

Price of Food

The amount of money required to purchase food products, influenced by factors like supply and demand, production costs, and government policies.

Price of Clothing

The amount of money required to purchase garments, influenced by factors like brand, quality, and market demand.