You are considering adding a microbrewery on to one of your firm's existing restaurants.This will entail an investment of $40,000 in new equipment.This equipment will be depreciated straight line over five years.If your firm's marginal corporate tax rate is 21%,then what is the value of the microbrewery's depreciation tax shield in the first year of operation?
A)$1680
B)$14,000
C)$5200
D)$26,000

Question

Quizplus · Accepted Answer

The depreciation expense is $40,000 / 5 = $8,000 per year. The tax shield is the depreciation expense multiplied by the tax rate: $8,000 * 21% = $1,680.

You Are Considering Adding a Microbrewery on to One of Your