Your Company Is Considering a New Project That Will Require

Your company is considering a new project that will require $10,000 of new equipment at the start of the project. The equipment will have a depreciable life of five years and will be depreciated to a book value of $3,000 using straight-line depreciation. The cost of capital is 9 percent, and the firm's tax rate is 21 percent. Estimate the present value of the tax benefits from depreciation.

A) $476
B) $924
C) $5,446
D) $1,143.56

Correct Answer:

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