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tiny-mole [99]
3 years ago
15

The Sisyphean Company is considering a new project that will have an annual depreciation expense of $3.6 million. If Sisyphean's

marginal corporate tax rate is 35% and its average corporate tax rate is 30%, then what is the value of the depreciation tax shield on the company's new project
Business
1 answer:
castortr0y [4]3 years ago
3 0

Answer:

$1,260,000

Explanation:

Given that,

Annual depreciation expense = $3.6 million

Marginal corporate tax rate = 35%

Average corporate tax rate = 30%

The reason to use marginal tax shield is that the firm would save additional amount it would have paid in taxes.

Value of the depreciation tax shield:

= Marginal corporate tax rate × Annual depreciation expense

= 35% × $3,600,000

= $1,260,000

Therefore, the value of the depreciation tax shield on the company's new project is $1,260,000.

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