Kobe Company will purchase a van for $50,000.The van's depreciable life is 5 years.The van has no terminal salvage value.Assume a tax rate of 30% and a required after-tax rate of return of 12%.The company uses the straight-line method of depreciation for tax purposes.What is the annual after-tax cash flow from depreciation expense?

Question

Quizplus · Accepted Answer

The annual depreciation expense is $10,000 ($50,000/5 years). The tax shield from depreciation is $10,000 * 30% = $3,000, which is an inflow.

Kobe Company Will Purchase a Van for $50,000