You are considering adding a microbrewery on to one of your firm's existing restaurants.This will entail an investment of $40,000 in new equipment.This equipment will be depreciated straight line over five years.If your firm's marginal corporate tax rate is 35%,then what is the value of the microbrewery's depreciation tax shield in the first year of operation?
A)$2800
B)$14,000
C)$5200
D)$26,000

Question

Quizplus · Accepted Answer

A)First figure out the straight line depreciation.
$40,000/5 years = $8000 depreciation per year.
Then .35 × $8000 = $2800 depreciation tax shield per year.

You Are Considering Adding a Microbrewery on to One of Your