An Investment of $120,000 Can Be Depreciated for Tax Purposes

question 37

Multiple Choice

An investment of $120,000 can be depreciated for tax purposes straight line over 6 years.The corporate tax rate is 40%.When calculating cash flow:

• A) the company should deduct a depreciation tax shield of $8,000 a year from after-tax (revenues less cash expenses)
• B) the company should add a depreciation tax shield of $8,000 a year to after-tax (revenues less cash expenses)
• C) the company should add a depreciation tax shield of $20,000 a year to after-tax (revenues less cash expenses)
• D) no adjustment should be made for depreciation since it is not a cash expense.

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Definitions:

Production Costs

The total expenses incurred in the process of creating and manufacturing a product or service.

Wage Rates

The standard amount of money paid for work performed, typically expressed per hour, day, or piece.

Price Elasticity

A calculation that determines how significantly a good's demanded quantity is influenced by price changes, revealing consumer sensitivity to price shifts.

Labor's Share

The portion of national income or output that is allocated to workers in the form of wages, salaries, and other forms of compensation.