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Example: Depreciation - The depreciation tax shield measures a company's tax savings, in a given year, from being able to deduct depreciation expenses from taxable
Example: Depreciation - The "depreciation tax shield" measures a company's tax savings, in a given year, from being able to deduct depreciation expenses from taxable income (i.e., the amount that your total taxes decrease due to depreciation). A firm has invested $10 million this year in new equipment. If this equipment can be depreciated, straight-line, over ten years (i.e., 10% depreciation a year), and if the firm pays corporate taxes at a rate of 22% what is the depreciation tax shield in the first year of this project? - The IRR is the discount rate (cost of capital, required return, etc.) that gives a project an NPV of zero - IRR and NPV rules often give you the same answer about whether to pursue a project. But, they don't always agree! - Example: a project requires an initial investment in year zero of $400,000. Cash flows are $200,000,$200,000, and $350,000 in years 1,2 , and 3 . What is the IRR of this project
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