47.—48. Great Grocery Store, a local retail grocery store, is considering a $250

Question

47.—48. Great Grocery Store, a local retail grocery store, is considering a $250,000 expenditure for new freezers in its Frozen Food Department. These freezers are expected to have a $25,000 salvage value at the end of their eight-year life. a. Based on the above information, calculate the annual “Depreciation Expense” for the new freezers. Assume that the straight-line depreciation method is used. b. If Great Grocery Store is in the 25% tax bracket, calculate the annual tax savings that the firm will realize due to the tax-deductibility of the non-cash “Depreciation Expense” on these new freezer.

Explanation / Answer

Annual depreciation under SLM = (Asset cost-Salvage value)÷Useful life of asset

= ($250,000-$25,000)/8

= $28,125

Annual tax savings:

= $28,125*25%

= $7,031.25 or $7,031

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