on 2
Seved
Help Save & Exit
Subm
Karl's Sausage Universe is thinking of adding a new speciality sausage making machine. The new
machine will cost $275,000 to purchase and Install. The Installed cost will be depreciated straight-line
over Its 6-year tax life and will be sold for $30,000 after the five years that Karl's plans to use it. The
machine will be housed in a small building that the company paid $100,000 for but has been trying sell
for $90,000. The new machine will enable the company to sell 50,000 sausages at a price of $2.75.
Variables costs are $1.15 per sausage and fixed costs are $35,000. Adding the new machine will require
an additional $7,000 in net working capital, which will be recovered at the end of the five-year project.
The tax rate is 21% and the discount rate is 11%.
What is the deprectiation tax shield for the second year of the project?
Multiple Choice
$11,550
None of the above.
$9,625
$6,300
$45,833
96 25
Plan