Eglon Mills has a new Year 2020 project with an initial equipment cost of $368,000 and a project life of 10 years. The firm generally uses straight-line depreciation to a zero book value over the project's life. If the firm opts instead to use the bonus depreciation method, what is the depreciation tax shield amount for Year 2020 at a tax rate of 21 percent?
A) $77,280
B) $38,640
C) $7,280
D) $3,864
E) $15,456

Question

Quizplus · Accepted Answer

Under the bonus depreciation method, the firm can deduct 100% of the equipment's cost in the first year of the project. Therefore, the depreciation tax shield amount for Year 2020 would be:
$368,000 * 100% * 21% = $77,280.

Eglon Mills Has a New Year 2020 Project with an Initial