A firm plans to purchase a $50,000 asset that will be depreciated straight-line over a 5-year life to a zero salvage value.What is the present value of the resulting depreciation tax shield if the tax rate is 35% and the discount rate is 10%?
A) $10,866.67
B) $13,267.75
C) $17,500.00
D) $37,908.18

Question

Quizplus · Accepted Answer

Annual depreciation tax shield = $50,000 / 5 × 0.35 = $3,500PV of tax shield = $3,500 {(1 / 0.1) − [1 / 0.1(1.1)⁵]} = $13,267.75

A Firm Plans to Purchase a $50,000 Asset That Will