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Consider a company that has a tax rate of 29 percent. The company has an asset...

Consider a company that has a tax rate of 29 percent. The company has an asset classified as a 3-year asset for tax purposes yet has a useful life of 5 years. If the asset has an initial cost of $40,744, what is the depreciation tax shield for the second year of the asset’s useful life?

Report your answer to the nearest whole dollar (e.g., 123)

Solutions

Expert Solution

Compute the depreciation tax shield for 2nd year, using the equation as shown below:

Depreciation tax shield = (Initial investment/ Useful life)*Tax rate

                                      = ($40,744/ 3 years)*29%

                                      = $13,581.3333333*29%

                                      = $3,938.58666665

Hence, the depreciation tax shield for 2nd year is $3,939

jeff jeffy answered 1 year ago
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