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A cooperative that makes value-added products like jams and jellies has voted to purchase a new machine to fill their jars. The machine costs $21,000 and has a investment life of 8 years. The IRS will allow them to depreciate it over 15 years. The marginal tax rate will be 18% over the next 9 years and the inflation rate will be 1.5%. The cooperative requires a 12% pre-tax rate of return and the risk premium is 3%. What is the present value of the tax savings from depreciation? Please select the correct one : $1,314 $1,216 $1,239 $1,261 None of the answers are correct

A cooperative that makes value-added products like jams and jellies has voted to purchase a new machine to fill their jars. The machine costs $21,000 and has a investment life of 8 years. The IRS will allow them to depreciate it over 15 years. The marginal tax rate will be 18% over the next 9 years and the inflation rate will be 1.5%. The cooperative requires a 12% pre-tax rate of return and the risk premium is 3%. What is the present value of the tax savings from depreciation? Please select the correct one : $1,314 $1,216 $1,239 $1,261 None of the answers are correct

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A cooperative that makes value-added products like jams and jellies has voted to purchase a new machine to fill their jars. The machine costs $21,000 and has a investment life of 8 years. The IRS will allow them to depreciate it over 15 years. The marginal tax rate will be 18% over the next 9 years and the inflation rate will be 1.5%. The cooperative requires a 12% pre-tax rate of return and the risk premium is 3%. What is the present value of the tax savings from depreciation?

Please select the correct one :

$1,314

$1,216

$1,239

$1,261

None of the answers are correct

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