Morgado Inc. has provided the following data to be used in evaluating a proposed
ID: 2378515 • Letter: M
Question
Morgado Inc. has provided the following data to be used in evaluating a proposed investment project:
nitial investment
$260,000
Annual cash receipts
$91,000
Life of the project
6 year
Annual cash expenses
$56,000
Salvage value
$27,000
The company's tax rate is 32%. For tax purposes, the entire initial investment will be depreciated over 3 years without any reduction for salvage value. The company uses a discount rate of 12%.
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.)
nitial investment
$260,000
Annual cash receipts
$91,000
Life of the project
6 year
Annual cash expenses
$56,000
Salvage value
$27,000
Explanation / Answer
Depreciation each year = 260000/3 =$86666.67
Reduction in tax= $86666.67*32% =$27733
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