Find the present value of the depreciation tax shield and the present value of the after-tax salvage value

Find the present value of the depreciation tax shield and the present value of the after-tax salvage value, if the annual depreciation is $6,000 for 5 years, the after-tax salvage value is $9,000, and the tax rate is 40%. The required rate of return is 10%. The lease lasts for 5 years.

Present value of depreciation tax shield = $9,098 Present value of after-tax salvage value = $34,117

Present value of depreciation tax shield = $22,744 Present value of after-tax salvage value = $5,588

Present value of depreciation tax shield = $25,019 Present value of after-tax salvage value = $5,588

Present value of depreciation tax shield = $9,098 Present value of after-tax salvage value = $5,588

Solutions

Expert Solution


Annual Depreciation				6000
Tax shield @ 40%				2400
Multiply: Annuity PVF at 10% for 5 yrs				3.79079

Present value of tax shield on depreciation				9097.896

After tax salvage				9000
Multiply: PVF at 10% for 5th year				0.620921
Present value of After tax salvage				5588.289


Answer is Present value of Dep tax shield $ 9098; Present value of After tax salvage $ 5588

jeff jeffy answered 1 year ago

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