Use the following information to answer the question(s)below.
(Include the MACRS Table from the Appendix. )
Casa Grande Farms is considering purchasing multiple tractors for a total purchase price of $540,000.These tractors are expected to generate EBITDA of $250,000 for each of the next three years.Casa Grande Farms has a 21% tax rate and has a cost of capital of 10%.
-Assuming that Casa Grande Farms depreciates these tractors straight line over the three-year life,then the annual depreciation tax shield in year 2 is closest to:
A)$37,800.
B)$80,000.
C)$84,000.
D)$117,000.

Question

Quizplus · Accepted Answer

The annual depreciation tax shield is calculated as follows:Depreciation expense = Purchase price / Useful life= $540,000 / 3= $180,000Depreciation tax shield = Depreciation expense * Tax rate= $180,000 * 0.21= $37,800

Use the Following Information to Answer the Question(s)below