Fagen Grocery Store is considering the purchase of a new $45,000 delivery truck. The truck will have a useful life of 5 years, no terminal salvage value, and tax amortization will be calculated using the straight-line method.
If the truck is purchased, the company will be able to increase annual revenues by $90,000 per year for the life of the truck, but out-of-pocket expenses will also increase by $67,500 per year.
Assume a tax rate of 30 percent and a required after-tax rate of return equal to 10 percent.
Time value factors are given below for 5 years and an interest rate of 10 percent.

-What is the net present value of the tax savings from depreciation?
A) $3,912
B) $23,881
C) $10,235
D) $1,677

Question

Fagen Grocery Store is considering the purchase of a new $45,000 delivery truck. The truck will have a useful life of 5 years, no terminal salvage value, and tax amortization will be calculated using the straight-line method.
If the truck is purchased, the company will be able to increase annual revenues by $90,000 per year for the life of the truck, but out-of-pocket expenses will also increase by $67,500 per year.
Assume a tax rate of 30 percent and a required after-tax rate of return equal to 10 percent.
Time value factors are given below for 5 years and an interest rate of 10 percent.
 
-What is the net present value of the tax savings from depreciation?
A) $3,912 
B) $23,881 
C) $10,235 
D) $1,677

Quizplus · Accepted Answer

The Answer of Fagen Grocery Store is considering the purchase of a new $45,000 delivery truck. The truck will have a useful life of 5 years, no terminal salvage value, and tax amortization will be calculated using the straight-line method.
If the truck is purchased, the company will be able to increase annual revenues by $90,000 per year for the life of the truck, but out-of-pocket expenses will also increase by $67,500 per year.
Assume a tax rate of 30 percent and a required after-tax rate of return equal to 10 percent.
Time value factors are given below for 5 years and an interest rate of 10 percent.
 
-What is the net present value of the tax savings from depreciation?
A) $3,912 
B) $23,881 
C) $10,235 
D) $1,677

Fagen Grocery Store Is Considering the Purchase of a New