Use the Following Information to Answer the Question(s)below

question 92

Multiple Choice

Use the following information to answer the question(s) below.
(Include the MACRS Table from the Appendix. )
Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540,000.These tractors are expected to generate EBITDA of $250,000 for each of the next three years.Casa Grande Farms has a 35% tax rate and has a cost of capital of 10%.
-Assuming that Casa Grande Farms depreciates these tractors using MACRS depreciation method for three-year property starting immediately,then the annual depreciation tax shield in year 2 is closest to:

• A)20,785
• B)27,991
• C)84,000
• D)180,000

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Definitions:

Activity Variance

The difference between what was expected in terms of expenses or revenues for a particular activity level and what was actually realized.

Vehicle Operating Cost

The total expense associated with keeping a vehicle running, including fuel, maintenance, insurance, and depreciation.

Spending Variance

The difference between the actual amount spent and the budgeted amount for a particular expense category in a specific period.

Catering Supplies

Items such as utensils, dishes, and food ingredients required for preparing and serving food in catering services.