Porter Trucking is considering purchasing a new asset with an initial cost of $50 000 and an estimated annual income of $19 000.Cash operating expenses are expected to be $10 000 per year.Straight-line depreciation will be used over the five-year life of the asset and salvage value of $10 000 is to be considered in computing depreciation.Assuming that the income tax rate is 40%,what is the amount of annual tax savings from depreciation? Assume the straight-line depreciation method is used for both accounting and tax purposes.

Question

Quizplus · Accepted Answer

The annual depreciation expense is calculated as (Initial Cost - Salvage Value) / Useful Life = ($50,000 - $10,000) / 5 = $8,000. The tax savings from depreciation is the depreciation expense multiplied by the tax rate: $8,000 * 40% = $3,200.

Porter Trucking Is Considering Purchasing a New Asset with an Initial