Answer (C) is correct . The firm will be able to deduct 7% of the asset’s cost during the fourth year of the asset’s life. The deduction is $28,000 ($400,000 × 7%), and the tax savings is $11,200 ($28,000 × 40%). The present value of this amount is $6,608 ($11,200 × .59 PV of $1 at 14% for four periods).
Answer (A) is incorrect because The depreciation tax shield in Year?4 does have a present value.
Answer (B) is incorrect because The amount of $6,112 is calculated by using the cost of the asset less the salvage value to figure MACRS depreciation.
Answer (D) is incorrect because The amount of $16,520 is the present value of the depreciation in Year 4.
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The present value of the depreciation tax shield for the fourth year MACRS depreciation of Crane Company’s new asset is
