Question
Compute the present value of the after-tax cost (PVATC) of purchasing 7-year equipment that your corporate client can depreciate using the appropriate MACRS table. The
Compute the present value of the after-tax cost ("PVATC") of purchasing 7-year equipment that your corporate client can depreciate using the appropriate MACRS table. The immediate before-tax cost was $2,350,000 and your after-tax discount rate is 9%. Assume that all tax savings occur at the end of the deduction year. Hint: carefully "map out" when all of the before-tax and tax cash flows occur and discount as needed.
2. Same as #1, except that you can take 100% bonus depreciation on the equipment. How much lower is the PVATC in #2 than in #1?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To compute the present value of the aftertax cost PVATC of purchasing 7year equipment we need to consider the following cash flows 1 Immediate beforet...
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Step: 2
Step: 3
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
15th edition
77861612, 1259194078, 978-0077861612, 978-1259194078
