A firm invests in a 7-year project that requires the purchase of a $135,000 machine tool.This will be depreciated using 5-year MACRS and will have no salvage value.When will this equipment affect the project's tax payments?
A) Every year for 5 years
B) At the time of purchase only
C) Every year for 6 years
D) Every year for 7 years

Question

Quizplus · Accepted Answer

The equipment will be depreciated using 5-year MACRS, so it will affect the project's tax payments for 6 years (the first year of depreciation is included in the year of purchase). Therefore, the correct answer is C – every year for 6 years.

A Firm Invests in a 7-Year Project That Requires the Purchase