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DEF Corporation is considering purchasing a new production machine at a cost of $10,000,000. The machine...

DEF Corporation is considering purchasing a new production machine at a cost of $10,000,000. The machine is 7-year MACRS property. The corporate tax rate is a flat 21%, and the applicable discount rate is 6%.

a. Compute the after-tax cost of the machine to DEF.

b. Compute the after-tax cost of the machine to DEF, assuming that the machine qualifies for immediate expensing.

c. Comment.

MACRS percentages for depreciation each year are as follows:

   Year      %

     1     14.29
     2     24.49
     3     17.49
     4     12.49
     5      8.93
     6      8.92
     7      8.93
     8      4.46

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