A firm is considering investing in a new machine that will cost $600,000 and will be depreciated straight-line over five years.If the firm's marginal tax rate is 39%,what is the annual depreciation tax shield of purchasing the machine?
A)$120,000
B)$46,800
C)$$07,692
D)$234,000

Question

Quizplus · Accepted Answer

Annual Depreciation = Total Cost / Useful life = $600,000 / 5 = $120,000

Depreciation tax shield = Annual Depreciation X Marginal Tax Rate 
= $120,000 X 0.39 = $46,800

Therefore, the annual depreciation tax shield of purchasing the machine is $46,800. Option B is the correct answer.

A Firm Is Considering Investing in a New Machine That $$07,692 D)$234,000

A Firm Is Considering Investing in a New Machine That $$07,692
D)$234,000