Val's Pizzeria Is Contemplating the Acquisition of Some New Commercial

question 18

Multiple Choice

Val's Pizzeria is contemplating the acquisition of some new commercial ovens.The purchase price is $39,000.The equipment will be depreciated based on MACRS depreciation which allows for 33.33 percent,44.44 percent,14.82 percent,and 7.41 percent depreciation over years 1 to 4,respectively.The equipment will be worthless at the end of 4 years.The equipment can be leased for $12,500 a year.The firm can borrow money at 8 percent and has a 35 percent tax rate.What is the amount of the depreciation tax shield in year 3?

• A)$1,525.27
• B)$1,624.50
• C)$2,022.93
• D)$2,325.00
• E)$2,631.60

---

Definitions:

Subconscious

A part of the mind not fully aware but influences one's actions and feelings.

Catharsis

The process of releasing, and thereby providing relief from, strong or repressed emotions.

Repression

Defense mechanism in which the ego pushes anxiety-provoking material back into the unconscious.

Unconscious

The part of the mind that is inaccessible to the conscious mind but that affects behavior and emotions.