The company has a marginal tax rate of 32 percent. What is the annual value of the depreciation tax shield?

McElroy Carousel Horses is considering adding a new product line that will require an initial investment of $484,500 in fixed assets and that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The project is expected to increase annual sales by $338,000 and annual cash expenses by $184,000. The company has a marginal tax rate of 32 percent. What is the annual value of the depreciation tax shield?

$5,120
$13,160
$25,840
$32,560
$41,840

 

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