Colorform Company Is Considering the Purchase of the Following Computer

Multiple Choice

Colorform Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes: $\begin{array}{lrr}\text { Acquisition cost } & \$ 400,000 \\\text { Annual cash flow } & \$ 140,000 \\\text { Annual operating costs } & \$ 20,000 \\\text { Expected salvage value } & \$ 0 \\\text { Cost of capital } & 10 \% \\\text { Tax rate } & 40 \%\end{array}$ Colorform Company plans to use MACRS and keep the production equipment for seven years. (Round amounts to dollars.)
Tax savings from depreciation in Year 3 would be

A) $54,400.
B) $30,720.
C) $22,856.
D) $35,360.