Your firm needs a computerized machine tool lathe which costs $44,000 and requir

Question

Your firm needs a computerized machine tool lathe which costs $44,000 and requires $11,400 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 35 percent and a discount rate of 11 percent.

Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal places.)

Your firm needs a computerized machine tool lathe which costs $44,000 and requires $11,400 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 35 percent and a discount rate of 11 percent.

Explanation / Answer

Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal places.)

Using MACRS Table for calculation of Depreciation

Depreciation Expenses = 14.81%*44000

Depreciation Expenses = $ 6516.40

Depreciation tax shield = 6516.40*35%

Depreciation tax shield = $ 2280.74

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