Your firm needs a machine which costs $220,000, and requires$43,000 in maintenance for each year...

Your firm needs a machine which costs $220,000, and requires $43,000 in maintenance for each year of its 5 year life. After 5 years, this machine will be replaced. The machine falls into the MACRS 5-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 5?

$20,021.76
$25,344
$3,801.60
$5,322.24

Expert Solution

The depreciation tax shield is computed as follows:

= cost of the machine x depreciation tax rate in year 5 x tax rate

= $ 220,000 x 11.52% x 21%

= $ 5,322.24

jeff jeffy answered 2 years ago

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