The Lumber Yard Is Considering Adding a New Product Line

question 13

Multiple Choice

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $238,000 and cash expenses by $184,000.The initial investment will require $96,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project.The company has a marginal tax rate of 32 percent.What is the annual value of the depreciation tax shield?

• A)$5,120
• B)$13,160
• C)$25,840
• D)$32,560
• E)$41,840