What is the amount of annual depreciation tax shield for a firm with $

QUESTION

What is the amount of annual depreciation tax shield for a firm with $200,000 in net income, $75,000 in depreciation expense and a 35% marginal tax rate?
Recall that Depreciation is a NONcash expense and is tax deductible. That is: Sales Costs Dep = taxable income Taxable income x tax rate = taxes paid taxable income taxes paid = Net income the Depreciation tax shield is 75000 x 35% which

is $26,250. This amount boosts net income because depreciation reduces taxable income by 75,000 and thats 75,000 that you wont be paying taxes on. Hope this helps!

ANSWER:

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