Val's Pizzeria is contemplating the acquisition of some new commercial ovens.The purchase price is $39,000.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)$2,022.93
D)$2,325.00
E)$2,631.60

Question

Quizplus · Accepted Answer

Year 3 depreciation tax shield = $39,000 (0.1482) (0.35) = $2,022.93

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