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he Lumber Yard is considering adding a new product line that is expected to increase annual...

he Lumber Yard is considering adding a new product line that is expected to increase annual sales by $357,000 and expenses by $248,000. The project will require $157,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The company has a marginal tax rate of 35 percent. What is the depreciation tax shield?

Multiple Choice

$9,158

$20,825

$14,467

$17,008

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Answer #1

Annual depreciation expense=(Cost-Salvage value)/Useful Life

=(157000/6)=$26166.67/year

Hence depreciation tax shield=depreciation expense*Tax rate

=$26166.67*35%

which is equal to

=9158(Approx).

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