A-12 Present Value of Cash Flows

Rush Corporation plans to acquire production equipment for $605,000 that will be depreciated for tax purposes as follows: year 1, $121,000; year 2, $211,000; and in each of years 3 through 5, $91,000 per year. An 8 percent discount rate is appropriate for this asset, and the companys tax rate is 40 percent.

Required:

(a)	Compute the present value of the tax shield resulting from depreciation. (Round present value factor for each year to three decimal places and other computations to nearest whole dollar value.)

(b)	Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($121,000 per year). (Round present value factor for each year to three decimal places and other computations to nearest whole dollar value.)