Your firm needs a computerized machine tool lathe which costs $49,000 and requir
ID: 2774207 • Letter: Y
Question
Your firm needs a computerized machine tool lathe which costs $49,000 and requires $11,900 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 34 percent and a discount rate of 13 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 $49,000 and requires $11,900 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 34 percent and a discount rate of 13 percent.
Explanation / Answer
MACRS Depreciation Rate for 3-year class life category :
Depreciation tax shield for this project in year 3 = Cost* Depreciation rate*Tax rate
Depreciation tax shield for this project in year 3 = 49000*0.1481*34%
Depreciation tax shield for this project in year 3 = $ 2467.35
Year Depreciation rate 1 0.3333 2 0.4445 3 0.1481 4 0.0741Related Questions
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