Your firm needs a machine which costs $270,000, and requires $42,000 in maintenance for each year...

Your firm needs a machine which costs $270,000, and requires $42,000 in maintenance for each year of its 7 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 7-year class life category. Assume a tax rate of 40% and a discount rate of 16%. What is the depreciation tax shield for this project in year 7?

Expert Solution

Cost of machine = 270,000

7^th year MACRS rate = 8.93%

7th year Depreciation = cost of machine x macrs rate

= 270,000 x 8.93%

=24,111

Depreciation tax shield = Depreciation x tax rate

= 24,111 x 40%

= 9,644.40

jeff jeffy answered 2 years ago

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