Saturn, Inc

Saturn, Inc. is trying to decide whether to lease or buy some new equipment. The equipment costs $38,000, has a 3-year life and is worthless after the 3 years. The cost of borrowed funds is 8
Percent and the tax rate is 34 percent. The equipment can be leased for $14,500 a year. What is the
Amount of the annual depreciation tax shield in the second year if the equipment belongs in a 30
Percent CCA class?

A) $2,988
B) $3,295
C) $3,738
D) $4,005
E) $4,570