Your firm needs a machine which costs $50,000, and requires $2,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category. Assume a tax rate of 21 percent and a discount rate of 10 percent. What is the depreciation tax shield for this project in year 3?

Question

Quizplus · Accepted Answer

The depreciation tax shield for this project in year 3 is $1,555.05. This is calculated by taking the depreciation expense for year 3, which is $5,833.33, and multiplying it by the tax rate, which is 21%.

Your Firm Needs a Machine Which Costs $50,000, and Requires