Kobe Company will purchase a van for $50,000.The van's depreciable life is 5 years with no terminal salvage value.Assume a tax rate of 30% and a required after-tax rate of return of 12%.The annual after-tax effect of depreciation, if the straight-line method is used for taxes, is a _____.

Question

Quizplus · Accepted Answer

Using the straight-line method, the annual depreciation expense is $50,000 / 5 = $10,000. The tax savings from this depreciation is $10,000 * 30% = $3,000, which is an inflow because it reduces the amount of taxes paid.

Kobe Company Will Purchase a Van for $50,000