If the depreciable investment is $1,000,000 and the MACRS 5-Year class schedule is: Year-1: 20%; Year-2: 32%; Year-3: 19.2%; Year-4: 11.5%; Year-5: 11.5% and Year-6: 5.8% Calculate the depreciation tax shield for Year-2 using a tax rate of 30%:
A) $224,000
B) $60,000
C) $96,000
D) $300,000

Question

Quizplus · Accepted Answer

To calculate the depreciation tax shield for Year-2, we use the 32% rate from the MACRS 5-Year class schedule.

Depreciation in Year-2 = $1,000,000 x 32% = $320,000

The depreciation tax shield is equal to the depreciation expense multiplied by the tax rate.

Depreciation tax shield in Year-2 = $320,000 x 30% = $96,000

Therefore, the correct answer is (C) $96,000.

If the Depreciable Investment Is $1,000,000 and the MACRS 5-Year