Vendome Company Is Considering the Purchase of the Following Computer

Multiple Choice

Vendome Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes: $\begin{array}{lr}\text { Acquisition cost } & \$ 500,000 \\\text { Annual cash flow } & \$ 180,000 \\\text { Annual operating costs } & \$ 30,000 \\\text { Expected salvage value } & \$ 0\\\text { Cost of capital } & 12 \% \\\text { Tax rate } & 40 \%\end{array}$ Vendome plans to use MACRS and keep the production equipment for seven years. (Round amounts to dollars.) The tax savings from depreciation in Year 3 would be

A) $38,400.
B) $28,570.
C) $71,428.
D) $96,000.