The Sisyphean Company is considering a new project that will have an annual depreciation expense of $2.5 million.If Sisyphean's marginal corporate tax rate is 40% and their average corporate tax rate is 30%,then what is the value of the depreciation tax shield on their new project?
A)$750,000
B)$1,000,000
C)$1,500,000
D)$1,750,000

Question

Quizplus · Accepted Answer

B)Here we need to use the marginal tax rate.
So depreciation tax shield = $2,500,000 × .40 = $1 million

The Sisyphean Company Is Considering a New Project That Will