Keyser Mining Is Considering a Project That Will Require the Purchase

question 7

Multiple Choice

Keyser Mining is considering a project that will require the purchase of $875,000 in new equipment.The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project.The equipment can be scraped at the end of the project for 5 percent of its original cost.Annual sales from this project are estimated at $420,000.Net working capital equal to 20 percent of sales will be required to support the project.All of the net working capital will be recouped.The required return is 16 percent and the tax rate is 34 percent.What is the value of the depreciation tax shield in year 4 of the project?

• A)$42,500
• B)$52,200
• C)$68,600
• D)$71,400
• E)$76,500

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Definitions:

Unreasonably Dangerous

A term describing a product or condition that poses a risk to health or safety beyond what would be expected by the ordinary consumer.

Strict Liability

A legal doctrine holding an individual or entity liable for damages or injuries caused by their actions, regardless of fault or intent.

402A

A section of the Restatement (Second) of Torts that outlines the principle of strict liability for harm caused by defective products.

Safety Shielding

Protective measures or devices designed to prevent accidents or injuries in various environments, especially those involving machinery, equipment, or hazardous materials.