Samsonite Company Will Purchase a Van for $40,000

Samsonite Company will purchase a van for $40,000.It will have a depreciable life of 5 years and no terminal salvage value.Assume a tax rate of 30% and a required rate of return of 12%.The company uses the straight-line method of depreciation for tax purposes.What is the present value of the total after-tax savings from the depreciation over the life of the van? (The present value of an ordinary annuity factor for 5 periods at 12% is 3.6048.The present value of a single sum for 5 periods at 12% is 0.5674.)

A) $8,652
B) $16,000
C) $17,303
D) $24,000

Correct Answer:

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