Manosteel Ltd is considering the purchase of a new machine for $100,000. It is to be depreciated on a straight-line basis and is estimated to have no residual value at the end of a useful life of 10 years. The tax rate is 30 per cent. What will be the annual cash tax saving in relation to depreciation expense?

Question

Quizplus · Accepted Answer

The annual depreciation expense is $100,000 / 10 years = $10,000. The tax saving is calculated as the depreciation expense multiplied by the tax rate: $10,000 * 30% = $3,000.

Manosteel Ltd Is Considering the Purchase of a New Machine