Oberon Corp is considering a project with annual depreciation tax shield of 432,600. The company's tax rate is 20.5%. Depreciation expense is closest to: O A. $547,795. B. $776,517. O C. $2,110,244.
Oberon Corp is considering a project with annual depreciation tax shield of 432,600. The company's tax rate is 20.5%. Depreciation expense is closest to: O A. $547,795. B. $776,517. O C. $2,110,244.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Problem: Calculating Depreciation Expense**
Oberon Corp is considering a project with an annual depreciation tax shield of $432,600. The company's tax rate is 20.5%. Determine the depreciation expense. The closest option is:
- A. $547,795
- B. $776,517
- C. $2,110,244
**Explanation:**
To find the depreciation expense, use the formula for the depreciation tax shield:
\[ \text{Depreciation Tax Shield} = \text{Depreciation Expense} \times \text{Tax Rate} \]
Rearranging this formula to solve for the depreciation expense:
\[ \text{Depreciation Expense} = \frac{\text{Depreciation Tax Shield}}{\text{Tax Rate}} \]
Substitute the given values:
\[ \text{Depreciation Expense} = \frac{432,600}{0.205} \]
Calculate the result to select the closest option.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fde623c10-ef3b-4bed-a459-f166acb86a4d%2Fb28315fe-6879-4c77-a16b-07d3e637faed%2Fc4hzs_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Problem: Calculating Depreciation Expense**
Oberon Corp is considering a project with an annual depreciation tax shield of $432,600. The company's tax rate is 20.5%. Determine the depreciation expense. The closest option is:
- A. $547,795
- B. $776,517
- C. $2,110,244
**Explanation:**
To find the depreciation expense, use the formula for the depreciation tax shield:
\[ \text{Depreciation Tax Shield} = \text{Depreciation Expense} \times \text{Tax Rate} \]
Rearranging this formula to solve for the depreciation expense:
\[ \text{Depreciation Expense} = \frac{\text{Depreciation Tax Shield}}{\text{Tax Rate}} \]
Substitute the given values:
\[ \text{Depreciation Expense} = \frac{432,600}{0.205} \]
Calculate the result to select the closest option.
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