Depreciation and Tax Shield

A company purchases equipment worth $100,000. The equipment is expected to have a useful life of 5 years with no salvage value. The company uses straight-line depreciation and is in the 30% tax bracket.

Requirements: (a) Calculate the annual depreciation expense. (b) Calculate the depreciation tax shield for each year. (c) Determine the net book value of the equipment at the end of year 3. (d) If the equipment is sold at the end of year 3 for $40,000, calculate the after-tax salvage value.