Morgado Inc. has provided the following data to be used in evaluating a proposed

Question

Morgado Inc. has provided the following data to be used in evaluating a proposed investment project:

Initial investment $270,000
Annual cash receipts $92,000
Life of the project 7 year
Annual cash expenses $57,000
Salvage value $28,000

The company's tax rate is 33%. For tax purposes, the entire initial investment will be depreciated over 5 years without any reduction for salvage value. The company uses a discount rate of 13%.

By how much does the depreciation deduction reduce taxes each year in which the depreciation deduction is taken? (Round your intermediate and final answer to the nearest whole number.)

$17,820
$54,000
$14,000
$36,180

Explanation / Answer

Morgado Inc. has provided the following data to be used in evaluating a proposed investment project:

Initial investment $270,000
Annual cash receipts $92,000
Life of the project 7 year
Annual cash expenses $57,000
Salvage value $28,000

The company's tax rate is 33%. For tax purposes, the entire initial investment will be depreciated over 5 years without any reduction for salvage value. The company uses a discount rate of 13%.

By how much does the depreciation deduction reduce taxes each year in which the depreciation deduction is taken? (Round your intermediate and final answer to the nearest whole number.)

$17,820
$54,000
$14,000
$36,180

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