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Answer (A) is correct . Older equipment that is being disposed of is reaching the end of its productive life. Thus, in the early years of the project, the depreciation expense on the new equipment only provides an incremental tax benefit since there was some depreciation expense still being recognized on the old equipment. Once the time of the old equipment’s useful life has passed, all the depreciation tax shield is being provided by the (higher) expense being recognized on the new equipment.

Answer (B) is incorrect because The depreciation expense on the newer equipment will be higher once the time of the old equipment’s useful life has passed.
Answer (C) is incorrect because The depreciation expense on the newer equipment will generally be different from that on the old equipment.
Answer (D) is incorrect because The correct answer can be determined from the information given.