Use the information for the question(s)below.
Shepard Industries is evaluating a proposal to expand its current distribution facilities.Management has projected the project will produce the following cash flows for the first two years (in millions).
-The depreciation tax shield for the Shepard Industries project in year two is closest to:
A)$59 million.
B)$196 million.
C)$50 million.
D)$96 million.

Question

Use the information for the question(s)below.
Shepard Industries is evaluating a proposal to expand its current distribution facilities.Management has projected the project will produce the following cash flows for the first two years (in millions). 
-The depreciation tax shield for the Shepard Industries project in year two is closest to:
A)$59 million. 
B)$196 million. 
C)$50 million. 
D)$96 million.

Quizplus · Accepted Answer

The depreciation tax shield is calculated as the depreciation expense multiplied by the tax rate. If the depreciation expense is $196 million and the tax rate is 30%, the tax shield would be $196 million * 0.30 = $58.8 million, which is closest to $59 million.

Use the Information for the Question(s)below