Gregorek Company is planning to buy a set of special tools for its grinding operation. The cost

Question:

Gregorek Company is planning to buy a set of special tools for its grinding operation. The cost of the tools is $18,000. The tools have a three-year life and qualify for the use of the three-year MACRS. The tax rate is 40 percent; the cost of capital is 12 percent.

Required:

1. Calculate the present value of the tax depreciation shield, assuming that straight line depreciation with a half-year life is used.

2. Calculate the present value of the tax depreciation shield, assuming that MACRS is used.

3. What is the benefit to the company of using MACRS?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...