Suppose an asset is classified as a 3-year asset for tax purposes, but has a useful life of 5 years. If the asset's depreciation for tax purposes for the first year is $30,000, the depreciation tax shield for the first year of the asset's useful life, if the tax rate is 35 percent, is closest to:

Question

Quizplus · Accepted Answer

The depreciation tax shield is calculated as the depreciation expense multiplied by the tax rate. Therefore, for the first year, it is $30,000 * 0.35 = $10,500.

Suppose an Asset Is Classified as a 3-Year Asset for Tax