**Question:**Newton Company is considering the purchase of an asset that will provide a depreciation tax shield of $10,000 per year for 10 years. Assuming the company is subject to a 40% tax rate during the period and a zero salvage value, what is the depreciable cost of the new asset?**Multiple Choice:**- ○ $100,000 - ○ $250,000 - ● $400,000 - ○ Can't be determined from the information provided**Explanation:**The problem involves calculating the depreciable cost of an asset to achieve a specified tax shield. Given the depreciation tax shield of $10,000 per year and a 40% tax rate, one can use the formula for the tax shield: \[ \text{Tax Shield} = \text{Depreciation} \times \text{Tax Rate} \]Here, rearranging the formula for depreciation gives:\[ \text{Depreciation} = \frac{\text{Tax Shield}}{\text{Tax Rate}} \]Inserting the given values:\[ \text{Depreciation} = \frac{10,000}{0.40} = 25,000 \]To find the depreciable cost over 10 years:\[ \text{Depreciable Cost} = \text{Depreciation} \times \text{Years} = 25,000 \times 10 = 250,000 \]There may be a confusion with the options; however, based on calculations, $250,000 appears correct unless other factors are considered in the multiple-choice options. It's also possible that an error occurred in setting the options if $400,000 is marked.

solution : given depreciation tax shield per year = $10,000 tax rate…

Answered: Newton Company is considering the…

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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