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:

Upper Control Limits

The threshold values in statistical quality control that indicate the maximum acceptable variation in a process.

Pareto Analysis

A decision-making technique used for selecting a limited number of tasks that produce significant overall effect, based on the principle that 80% of effects come from 20% of causes.

Vital Few

A principle often associated with the Pareto Principle, indicating that a small number of causes, inputs, or effort usually lead to a majority of the results, outputs, or rewards.

Cause-And-Effect

A relationship between events where one is the result of the other, often illustrated by a fishbone diagram in quality improvement contexts.