Newton Company Is Considering the Purchase of an Asset That

question 79

Multiple Choice

Newton Company is considering the purchase of an asset that will provide a depreciation tax shield of $10,000 per year for 10 years.Assuming the company is subject to a 40% tax rate during the period and a zero salvage value,what is the depreciable cost of the new asset?

• A) $100,000
• B) $250,000
• C) $400,000
• D) Can't be determined from the information provided

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Definitions:

Long Run

The Long Run is a period in economics during which all factors of production and costs are variable, allowing for adjustment to changing market conditions.

Fixed Amount

A specific, unchanging quantity of something.

Diminishing Returns

An economic principle that states as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot increase proportionally.

Negative Returns

A situation in which additional investment or effort results in a decrease in output or performance, contrary to typical expectations for growth or improvement.