Eight years ago, a company purchased an injection molding machine at $40,000. It has been depreciated according to conventional straight-line method (book depreciation) over a 12-year life. The estimated salvage value at the end of 12 years (from the purchase) was $4,000. The machine has a current market value of $15,000. Assume the company purchases a new machine at a cost of $50,000 with a salvage value of $5,000 and a 10 year life. The firm's income tax rate is 40% and their discount rate is 10%. What is the net depreciation tax shield during year three?

Eight years ago, a company purchased an injection molding machine at $40,000. It has been depreciated according to conventional straight-line method (book depreciation) over a 12-year life. The estimated salvage value at the end of 12 years (from the purchase) was $4,000. The machine has a current market value of $15,000. Assume the company purchases a new machine at a cost of $50,000 with a salvage value of $5,000 and a 10 year life. The firm's income tax rate is 40% and their discount rate is 10%. What is the net depreciation tax shield during year three?

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Description: Eight years ago, a company purchased aninjection molding machine at $40,000. It hasbeen depreciated according to conventionalstraight-line method (book depreciation) overa 12-year life. The estimated salvage value atthe end of 12 years (from the pur

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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