Strauss Corporation is making a $90,000 investment in equipment with a five-year life. The company uses the
Question:
Strauss Corporation is making a $90,000 investment in equipment with a five-year life. The company uses the straight-line method of depreciation and has a tax rate of 20 percent. The company’s required rate of return is 15 percent.
Required
What is the present value of the tax savings related to depreciation of the equipment (round to nearest dollar)?
Step by Step Answer:
Annual depreciation 90000 5 years 18000 An...View the full answer
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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