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A-13 Present Value of Cash Flows Rush Corporation plans to acquire production equipment for $635,000 that...

A-13 Present Value of Cash Flows

Rush Corporation plans to acquire production equipment for $635,000 that will be depreciated for tax purposes as follows: year 1, $127,000; year 2, $217,000; and in each of years 3 through 5, $97,000 per year. A 12 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent. Use Exhibit A.8 and Exhibit A.9.

Required:

a. Compute the present value of the tax shield resulting from depreciation. (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)

b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($127,000 per year). (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)

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ekkarill92 answered 5 months ago
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