Val's Pizzeria Is Contemplating the Acquisition of Some New Commercial

question 46

Multiple Choice

Val's Pizzeria is contemplating the acquisition of some new commercial ovens. The purchase price is $38,000. The equipment will be depreciated based on MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The equipment will be worthless at the end of 4 years. The equipment can be leased for $12,500 a year. The firm can borrow money at 8 percent and has a 35 percent tax rate. What is the amount of the depreciation tax shield in year 3?

• A)$1,525.27
• B)$1,624.50
• C)$1,971.06
• D)$2,325.00
• E)$2,631.60

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Definitions:

Inverted-U Function

A theory suggesting that performance increases with arousal up to an optimal point, beyond which further increases in arousal can lead to decreased performance.

Arousal

A physiological and psychological state of being awoken or stimulated to action.

Performance

The action or process of carrying out or accomplishing an action, task, or function, often measured against known standards.

Waking Thoughts

The ideas, reflections, and daydreams that occupy one's mind during moments of wakefulness.