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:

Buyer

An individual or entity that purchases goods or services for personal use, resale, or production.

Efficiency Loss

The reduction in economic efficiency that occurs typically due to market distortions such as taxes, subsidies, tariffs, or monopolies, leading to an allocation that is not welfare-optimal.

Excise Tax

A tax on the manufacturing, sale, or consumption of a particular good or service within a country.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity of that good or service that suppliers are willing and able to provide at each price level.