What Is the Amount of the Annual Depreciation Tax Shield

question 52

Multiple Choice

What is the amount of the annual depreciation tax shield for a firm with $200,000 in net income, $75,000 in depreciation expense and a 35 percent marginal tax rate?

• A)$26,250
• B)$43,750
• C)$70,000
• D)$75,000

---

Definitions:

Extraction

The process of removing natural resources from the earth, such as mining for minerals or drilling for oil, which can have significant accounting and environmental implications.

Impairment Write-downs

Accounting adjustments made to write off the portion of an asset's carrying amount that exceeds its recoverable amount.

Cash-generating Units

The smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets.

AASB 6/IFRS 6

Standards guiding the exploration for and evaluation of mineral resources, providing criteria on the recognition and measurement of exploration and evaluation expenditures.