Droids-R-Us Inc

question 70

Multiple Choice

Droids-R-Us Inc.(DRU) ,is considering the installation of a new production line to make service mechanoids.The cost of the new manufacturing equipment is $2.2 million.The machines are classified as 7-year properties.(MACRS rates are provided in the table,below.) The machines will be purchased at the beginning of 2014.(DRU uses a mid-year placed-in-service convention.) DRU's engineers estimate that the new assembly line could be ready for operations in early 2014.Annual EBITDA is forecasted to be $1.3M for 2014 and all subsequent years of the project.DRU's marginal tax rate is 35%.What is the value of the depreciation tax shield in 2015? (Do NOT assume that the equipment is salvaged in 2015.) Round your answers to the nearest dollar.

• A) $110,033
• B) $188,573
• C) $134,673
• D) $314,380
• E) $538,780