A company buys equipment for 150,000. It will use the equipment for four years, after which it will be disposed of for 25,000. The equipment attracts capital allowances at 25% per annum on a reducing balance basis. The tax rate is 20% and tax is paid one year after the accounting year end.

The companys cost of capital is 8%.

What is the present value of the tax saving that results from the year 1 capital allowance (to the nearest 10)?

a.

7,500

b.

6,430

c.

32,140

d.

6,950