Your Firm Needs a Machine Which Costs $100,000, and Requires

question 66

Multiple Choice

Your firm needs a machine which costs $100,000, and requires $25,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category. Assume a tax rate of 35 percent and a discount rate of 14 percent. What is the depreciation tax shield for this project in year 3?

• A)$2,073.40
• B)$5,183.50
• C)$9,626.50
• D)$14,810.00

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Definitions:

Modified Accelerated Cost Recovery System (MACRS)

A method of depreciation in the United States that allows for a faster write-off of asset value for tax purposes.

Depreciation Method

A systematic approach to allocate the cost of a tangible asset over its useful life, reflecting the asset's wear and tear, decay, or decline in value.

Tax Purposes

The phrase "For Tax Purposes" refers to any actions or decisions made specifically to comply with tax laws and regulations, including the calculation of taxable income, deductions, and credits.

Financial Statement

Papers that present a summary of a corporation's financial status, covering balance sheets, income statements, and statements of cash flows.