4. To help pay for infrastructure spending, the President proposes raising the corporate income tax rate from the current rate of 21% to a new rate of 25%.

You are responsible for the firms capital budgeting process and you are considering the purchase of a new machine. The total cost of the new machine is $1,000,000 and will be paid today. Your firm depreciates new fixed assets of this type using straight-line depreciation. The machine will have a five-year life and no salvage value. The first year of depreciation expense is recognized at the end of the first year of the fixed assets five-year life. The firm expects to be profitable throughout the foreseeable future. The firms required return is 11%, its beta is 0.62, its correlation coefficient with the S&P 500 is 0.57, and its bonds are rated AA.

Provide calculations to show whether the new tax law will make the investment in the new machine more or less likely. Calculations should be as specific as possible.