The Chill Factor Ski Corporation plans to acquire production equipment at a cost of

$200,000 that will be depreciated for tax purposes as follows: Year 1 , $40,000; Year 2,

$70,000; and $30,000 per year in each of Years 3-5. An 18 percent discount rate is appropriate for this asset, and the company's tax rate is 40 percent.

a. Compute the present value of the tax shield resulting from depreciation. Refer to Exhibit A for format.

b. Compute the present value of the tax shield from depreciation assuming straightline depreciation ($40,000 per year). Refer to Exhibit A for format.