Given the following information :
Nominal Initial Cost = $30,000; Nominal Before-tax Net Return = $8,000
Marginal Tax Rate = 10%; Required rate of return = 10%
Real Terminal Value = $0; Investment Life = 5 years
Suppose that IRS will allow the investor to depreciate the investment using straight-line over 15 years and the inflation rate is 4%.
(i) What is the annual depreciation expense?
a. $2,000 b. $2,080
c. $6,000 d. $6,240
enter response here:
(ii) What are the tax savings from depreciation?
a. $250 b. $160
c. $200 d. $80