The local printing company purchases a new copy machine for $150,000 that reduces the cost of making a color copy by ten cents a copy.The copy machine can be depreciated straight line for seven years and the company is in the 28 percent income tax bracket.The owner believes he can sell the machine for $10,000 at the end of seven years.Approximately how much will this company save on an annual basis in income taxes?

Question

Quizplus · Accepted Answer

The annual depreciation expense is $150,000 / 7 = $21,428.57. The tax savings from depreciation is $21,428.57 * 28% = $6,000. However, considering the salvage value of $10,000, the annual tax savings is slightly adjusted to approximately $5,600.

The Local Printing Company Purchases a New Copy Machine for $150,000