Question

Tad's tackle shop has a potential investment of $750,000 which generated a depreciation tax shield of $35,000 and a tax rate of 20% for 2016. how much depreciation expense did tad's tackle shop record during 2016?
a. $140,000
b. $150,000
c. $175,000
d. $7,000

Answer 1

Potential investment of the Tackle shop = $750000 Depreciation Tax Shield = $35000 Tax Rate for 2016 = 20% => T = 0.2 So we have a equation for depreciation, which goes like Depreciation Tax Shield = T(Depreciation ) => 35000 = 0.2(Depreciation) So the Depreciation = 35000/0.2 which gives $175,000 Depreciation = $175,000 So C is correct.