A piece of equipment costs ($ 100,000) and has a five year life. Assuming straight-line depreciation and

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A piece of equipment costs \(\$ 100,000\) and has a five year life. Assuming straight-line depreciation and a 40 percent tax rate, this investment:

a. Will generate a positive cash inflow at time 0

b. Will have a negative depreciation tax shield

c. Will generate a \(\$ 40,000\) expense each year but will not affect cash flows beyond year 0

d. Will generate a depreciation tax shield equivalent to an annual cash inflow of \(\$ 8,000\) for five years

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Managerial Accounting

ISBN: 12

3rd Edition

Authors: James Jiambalvo

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