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A company purchases an asset that costs $46,000. This asset qualifies as three-year property under MACRS....

A company purchases an asset that costs $46,000. This asset qualifies as three-year property under MACRS. The company uses an after-tax discount rate of 12% and faces a 31% income tax rate. (Use Table 1, Table 2 and Exhibit 12.4.)

1. Demonstrate that the PV of the depreciation deductions, when the income tax rate is 31%, is $11,472.
2. Given an after-tax discount rate of 12%, what tax rate would be needed in order for the PV of the depreciation deductions to equal $14,260? Use the Goal Seek function of Excel.

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ekkarill92 answered 1 year ago
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