Tax savings from the depreciation tax shield


Question: Suppose a machine that costs $80,000 has a useful life of 10 years. Also suppose that depreciation on the machine is $8,000 for tax purposes in year 4. The tax rate is 40%. The tax savings from the depreciation tax shield in year 4 would be:

A)    $4,800 inflow. C)    $4,800 outflow.
B)    $3,200 inflow. D)    $3,200 outflow.

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Accounting Basics: Tax savings from the depreciation tax shield
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