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 the machine can be sold 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 calculated as (Cost - Salvage value) / Useful life = ($150,000 - $10,000) / 7 = $20,000. The tax savings from depreciation is then $20,000 * 28% = $5,600.

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