Your firm needs a machine which costs $160,000, and requires $31,000 in maintenance for each year...

Your firm needs a machine which costs $160,000, and requires $31,000 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 15%. What is the depreciation tax shield for this project in year 3?

$23,696
$18,720
$4,976.16
$3,554.40

Expert Solution

depreciation rate of third year is 14.81%

depreciation =asset value * depreciation rate

=$160,000*14.81%

=23696

depreciation tax shield = depreciation expense* tax rate

=23696*21%

=$4,976.16

option c is correct

jeff jeffy answered 2 years ago

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