Question

Redbird Corporation provides the following data: Cash inflows $50,000 Cash outflows $43,000 Net income $35,000 Depreciation deduction $ 5,000 Accumulated depreciation $10,000 Tax rate 30% What is Redbird's tax shield?

Answer 1

The correct answer to the following question is $1500.

Step-by-step explanation:

Tax shield can be defined as the deductions which are allowed on the taxable income, which would ultimately lead to decrease in the taxes paid to the government.

Given information -

Cash inflow - $50,000

Cash outflow - $43,000

Net income - $35,000

Depreciation deduction - $5000

Accumulated depreciation - $10,000

tax rate - 30%

For taking out the tax shield - Sum of taxable deduction x Tax rate

Depreciation expense x tax rate

= $5000 x 30%

= $1500