Manosteel Ltd Is Considering the Purchase of a New Machine

question 49

Multiple Choice

Manosteel Ltd is considering the purchase of a new machine for $100,000. It is to be depreciated on a straight-line basis and is estimated to have no residual value at the end of a useful life of 10 years. The tax rate is 30 per cent. What will be the annual cash tax saving in relation to depreciation expense?

• A)$3,000.
• B)$100.
• C)$300.
• D)$10,000.

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Definitions:

Units Sold

The total quantity of products that a company has sold to its customers during a particular time frame.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue.

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, used to cover fixed costs and generate profits.

Gross Margin

Gross Margin is the difference between revenue and the cost of goods sold, divided by revenue, expressed as a percentage. It indicates the percentage of revenue that exceeds the cost of goods sold.