A company expanded into a new market in 2010. The expansion required an investment of $100...

A company expanded into a new market in 2010. The expansion required an investment of $100 in fixed assets per year for seven years (starting 2011). However, at the end of 2015, the company decided to terminate the project and sell off the fixed assets in place. Assume 30% tax rate and zero starting value of fixed assets. All fixed assets were depreciated following the MACRS schedule shown below. How much was the depreciation tax shield in year 2015?

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
MACRS	20.00%	32.00%	19.20%	11.52%	11.52%	5.76%

Group of answer choices

$24

$17.28

None of the above

$28.27

$30

Solutions

Expert Solution

Correct answer: $28.27

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Your company is considering an expansion and preparing budgets with and without the expanded activities. You...

Your company is considering an expansion and preparing budgets with and without the expanded activities. You have been asked to predict the cost of shipping at several different activity levels. You believe pounds shipped is a good cost driver and you have gathered historical data from the last 6 accounting periods, as summarized in the following table: Total cost of shipping Number of pounds shipped Period 1 93740 25000 Period 2 75040 19500 Period 3 82350 22400 Period 4 82260...

a company is considering a new 3-year expansion project that requires an initial fixed asset investment...

a company is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.076 million. the fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $394,800. the project requires an initial investment in net working capital of $564000. the project estimated to generate $4512000 in annual sales, with costs of $1804800. the tax rate is 33 percent and the required return on...

REQUIRED INVESTMENT Tannen Industries is considering an expansion. The necessary equipment would be purchased for $8...

REQUIRED INVESTMENT Tannen Industries is considering an expansion. The necessary equipment would be purchased for $8 million, and the expansion would require an additional $4 million investment in net operating working capital. The tax rate is 40%. What is the initial investment outlay? Round your answer to the nearest dollar. Write out your answer completely. For example, 13 million should be entered as 13,000,000. $ The company spent and expensed $20,000 on research related to the project last year. Would...

Alicaca Ltd is considering an investment in an expansion regarding development of a new product to...

Alicaca Ltd is considering an investment in an expansion regarding development of a new product to be sold in the existing market. The proposed project requires an initial investment of new machinery and equipment costing $4,000,000 using the straight-line method as its depreciation policy. In addition, initial working capital investment requires $400,000. The cost of capital applicable to the company in making investment decisions is 10%. In preparing capital budgeting analysis, the finance director has provided the following estimated net...

Apple Company considered new 3-year expansion project, which requires an initial fixed asset investment of $2,400....

Apple Company considered new 3-year expansion project, which requires an initial fixed asset investment of $2,400. Thus, Asset will be depreciated straight-line to zero over its 3-year tax life. The fixed asset will have a salvage value of $400 at the end of the project. The estimated annual sales are $2,500 and the total annual cost (fixed and variable costs) is $1,200. The company estimate that it needs net working capital, which is equal to 20% of annual sales. The...

Kopperud Electronics has an investment opportunity to produce a new HDTV. The required investment on January...

Kopperud Electronics has an investment opportunity to produce a new HDTV. The required investment on January 1 of this year is $215 million. The firm will depreciate the investment to zero using the straight-line method over four years. The investment has no resale value after completion of the project. The firm has a 25 percent tax rate. The price of the product will be $575 per unit, in real terms, and will not change over the life of the project....

O'Bannon Electronics has an investment opportunity to produce a new HDTV. The required investment on January...

O'Bannon Electronics has an investment opportunity to produce a new HDTV. The required investment on January 1 of this year is $190 million. The firm will depreciate the investment to zero using the straight-line method over four years. The investment has no resale value after completion of the project. The firm is in the 34 percent tax bracket. The price of the product will be $535 per unit, in real terms, and will not change over the life of the...

O'Bannon Electronics has an investment opportunity to produce a new HDTV. The required investment on January...

Sony International has an investment opportunity to produce a new stereo HDTV. The required investment on...

Sony International has an investment opportunity to produce a new stereo HDTV. The required investment on January 1 of this year is $155 million. The firm will depreciate the investment to zero using the straight-line method over four years. The investment has no resale value after completion of the project. The firm is in the 34 percent tax bracket. The price of the product will be $515 per unit, in real terms, and will not change over the life of...

Sony International has an investment opportunity to produce a new stereo HDTV. The required investment on...

Sony International has an investment opportunity to produce a new stereo HDTV. The required investment on January 1 of this year is $200 million. The firm will depreciate the investment to zero using the straight-line method over four years. The investment has no resale value after completion of the project. The firm is in the 34 percent tax bracket. The price of the product will be $485 per unit, in real terms, and will not change over the life of...

Subjects