Question
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
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.) |
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