Your firm needs a machine which costs $100,000, and requires $25,000 in maintenance for each year of its 3-year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 35% and a discount rate of 14%. What is the depreciation tax shield for this project in year 3?

A.$2,073.40

B.$5,183.50

C.$9,626.50

D.$14,810.00

Depreciation in year 3 will be 14.81% x $100,000 = $14,810. This will save the firm $14,810 x .35 = $5,183.50 in taxes

Where are they getting 14.81% from?