In: Finance
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
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 | ||||||||