Spherical Manufacturing recently spent 15 million to purchase some equipment used in the manufacture of disk...

Spherical Manufacturing recently spent 15 million to purchase some equipment used in the manufacture of disk brakes. This equipment has a CCA rate of 45% and Spherical's marginal corporate tax rate is 28%.

a. What are the annual CCA deductions associated with this equipment for the first five years?

b. What are the annual CCA tax shields for the first five years?

c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 10% per year?

d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 10% per year?

e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years?

Solutions

Expert Solution

notes

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Spherical Manufacturing recently spent $18 million to purchase some equipment used in the manufacture of disk...

Spherical Manufacturing recently spent $18 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's marginal corporate tax rate is 32%. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the appropriate discount rate...

Markov Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk...

Markov Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 35%. Markov will sell the equipment for an anticipated $2 million at the end of 5 years. Markov’s cost of capital is 10%. a. Using straight line depreciation down to salvage value, calculate the NPV of the equipment purchase. b. Using MACRS...

Spherical Manufacturing recently spent $ 10 million to purchase some equipment used in the manufacture of...

Spherical Manufacturing recently spent $ 10 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 25 % and Spherical's marginal corporate tax rate is 28 % a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the...

Spherical Manufacturing recently spent $ 10 million to purchase some equipment used in the manufacture of...

Spherical Manufacturing recently spent $ 10 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 25 % and Spherical's marginal corporate tax rate is 33 %. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the...

Spherical Manufacturing recently spent $ 16 million to purchase some equipment used in the manufacture of...

Spherical Manufacturing recently spent $ 16 million to purchase some equipment used in the manufacture of disk brakes. This equipment has a CCA rate of 30 % and Spherical's marginal corporate tax rate is 38 %. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years?

Spherical Manufacturing recently spent $ 14 million to purchase some equipment used in the manufacture of...

Spherical Manufacturing recently spent $ 14 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 45 % and Spherical's marginal corporate tax rate is 28 %. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the...

Markov Manufacturing recently spent $16.7 million to purchase some equipment used in the manufacture of disk...

Markov Manufacturing recently spent $16.7 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 21%. The company plans to use straight-line depreciation. a. What is the annual depreciation expense associated with this equipment? (Round to three decimal places) b. What is the annual depreciation tax shield? c. Rather than straight-line depreciation, suppose Markov will use the...

Markov Manufacturing recently spent $12.9 million to purchase some equipment used in the manufacture of disk...

Markov Manufacturing recently spent $12.9 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 21%. The company plans to use straight-line depreciation. a. What is the annual depreciation expense associated with this equipment? b. What is the annual depreciation tax shield? c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for the...

Spherical Manufacturing recently spent $ 12$12 million to purchase some equipment used in the manufacture of...

Spherical Manufacturing recently spent $ 12$12 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 45 %45% and Spherical's marginal corporate tax rate is 35 %35%. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the...

Markov Manufacturing recently spent $ 13.7 million to purchase some equipment used in the manufacture of...

Markov Manufacturing recently spent $ 13.7 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 21 %. The company plans to use straight-line depreciation. a. What is the annual depreciation expense associated with this equipment? b. What is the annual depreciation tax shield? c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method...

Subjects