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)

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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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