Your firm is considering a project that would require purchasing $7.9 million worth of new equipment....

Your firm is considering a project that would require purchasing $7.9 million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if the? firm's tax rate is 33%?, the appropriate cost of capital is 8 %?, and the equipment can be? depreciated:

Please round all answers to 4 decimals.

a.? Straight-line over a? ten-year period, with the first deduction starting in one year.

b.? Straight-line over a? five-year period, with the first deduction starting in one year.

c. Using MACRS depreciation with a? five-year recovery period and starting immediately.

d. Fully as an immediate deduction.

Solutions

Expert Solution

Part a:

Straightline Depriciation = (Cost of equipment $7.9 million- salvage value $0) / Number of years 10

Straightline Depriciation = $790,000 / per year

Part b:

Straightline Depriciation = (Cost of equipment $7.9 million- salvage value $0) / Number of years 5

Straightline Depriciation = $1,580,000 / per year

Part c:

Part d:

jeff jeffy answered 1 year ago

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