Your firm needs a machine which costs $130,000, and requires $28,000 in maintenance for each year...

Your firm needs a machine which costs $130,000, and requires $28,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 21% and a discount rate of 13%. What is the depreciation tax shield for this project in year 3?

$15,210
$4,043.13
$19,253
$2,502.89

Expert Solution

Depreciation tax shield in Year 3 = Cost of machine*Depreciation rate for Year 3*Tax rate

= 130,000*0.1481*21%

= $4,043.13

Hence, the answer is $4,043.13

Note: Maintenance costs are not capitalized.

jeff jeffy answered 2 years ago

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