Suppose That You Are Able to Generate an Annual Depreciation

question 13

Multiple Choice

Suppose that you are able to generate an annual depreciation deduction of $20,000 that would otherwise have been taxed at a 30% rate each year for 7 years. Suppose that your taxes due on sale in year 7 will be $32,000 greater than if the property had not been depreciated. Determine the net benefit of depreciation assuming a discount rate of 6.5%.

• A) $12,315
• B) $20,592
• C) $32,907
• D) $53,499

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Definitions:

Full Employment

A situation where all available labor resources are being used in the most efficient way possible, typically characterized by very low unemployment rates.

Impact Lag

The delay between the implementation of a policy (such as monetary or fiscal policy) and the observable effects of this policy on the economy.

Fiscal Policy

Government policies regarding taxation and spending that are used to influence economic conditions, including economic growth, inflation, and unemployment.

Budget Deficit

A scenario in which a government spends more than it earns in a particular timeframe, resulting in the need to accumulate debt or borrow money.