Keyser Mining Is Considering a Project That Will Require the Purchase

question 51

Multiple Choice

Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. The equipment can be scraped at the end of the project for 5 percent of its original cost. Annual sales from this project are estimated at $420,000. Net working capital equal to 20 percent of sales will be required to support the project. All of the net working capital will be recouped. The required return is 16 percent and the tax rate is 35 percent. What is the value of the depreciation tax shield in year 4 of the project?

• A)$49,000
• B)$52,200
• C)$68,600
• D)$71,400
• E)$76,500

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Definitions:

Kidneys

Organs in the human body that filter waste products from the blood to be excreted as urine.

Urethra

The tube that carries urine from the bladder to be expelled outside the body.

Trigone

A triangular area located in the urinary bladder, situated between the openings of the ureters and the urethra, which remains stable while the rest of the bladder expands or contracts.

Bladder

A hollow organ in the lower abdomen that stores urine before it is expelled from the body.