13A)

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