Question

Tax savings from depreciation are computed by depreciation * (1 - t), where t is the tax rate O depreciation * (t - 1), where t is the tax rate O depreciation * t, where t is the tax rate O depreciation * i, where i is the nominal interest rate O depreciation * r, where r is the real interest rate

Answer 1

Tax savings from depreciation are computed by

Depreciation*t where t is tax rate

Explanation:

Normally depreciation saves our taxable income, if we have higher depreciation expense we can reduce our taxable income.

Example: If company has depreciation expense of 50,000 and tax rate is 30%, then tax savings from depreciation is

Depreciation*tax rate

=50,000*30%

=15,000