Rosewood Limited Is Considering Purchasing New Equipment with an Initial

question 52

Multiple Choice

Rosewood Limited is considering purchasing new equipment with an initial cost of $175 000 and an estimated annual income of $60 000. Cash operating expenses are expected to be $12 000 per year. Straight-line depreciation will be used over the five-year life of the asset and a salvage value of $25 000 is to be considered in computing depreciation. Assuming the income tax rate is 30%, what is the amount of annual tax savings from depreciation? (Assume the straight-line depreciation method is used for both accounting and tax purposes.)

• A) $23 100
• B) $11 700
• C) $9 000
• D) $4 200

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