Val's Pizzeria Is Contemplating the Acquisition of Some New Commercial

Val's Pizzeria is contemplating the acquisition of some new commercial ovens. The purchase price is $38,000. The equipment will be depreciated based on MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The equipment will be worthless at the end of 4 years. The equipment can be leased for $12,500 a year. The firm can borrow money at 8 percent and has a 35 percent tax rate. What is the amount of the depreciation tax shield in year 3?

A) $1,525.27
B) $1,624.50
C) $1,971.06
D) $2,325.00
E) $2,631.60