Assume a firm purchases a piece of equipment that costs $500,000 and will be depreciated using straight-line depreciation over 5 years for tax purposes. If the firm is in the 34%
Marginal tax bracket, what will its annual tax savings due to the depreciation be?

Question

Quizplus · Accepted Answer

The annual depreciation expense is $500,000 / 5 = $100,000. The tax savings each year is this depreciation expense times the tax rate: $100,000 * 34% = $34,000.

Assume a Firm Purchases a Piece of Equipment That Costs