Question

A two-year project has sales of $582,960, cash costs of $411,015, and depreciation expense of $68,109. The tax rate is 24 percent and the discount rate is 12 percent. What amount should be used as the annual depreciation tax shield when computing the project's operating cash flow? Ignore bonus depreciation. C) $47,213.34 D) $26,210.01 E) $46,676.30 B) $16,346.16 A) $23,606.67

Answer 1

Answer: $16346

Explanation:

From the question, we are informed that a two-year project has sales of $582,960, cash costs of $411,015, and depreciation expense of $68,109 and that the tax rate is 24 percent and the discount rate is 12 percent.

It should be noted that the formula used for calculating annual depreciation tax shield is the annual depreciation expense multiplied by the tax rate. This will now be:

= $68,109 × 24%

= $68,109 × 0.24

= $16,346