A company anticipates a depreciation deduction of $20,000 in year 3 of a project.The company's tax rate is 30% and its discount rate is 14%.The present value of the annual depreciation deductions resulting from this deduction is closest to:

Question

Quizplus · Accepted Answer

The tax shield from the depreciation is $20,000 * 30% = $6,000. The present value of this tax shield in year 3 is $6,000 / (1 + 0.14)^3 = $4,050.

A Company Anticipates a Depreciation Deduction of $20,000 in Year