Exercise 19.18

MACRS, NPV

Lilly Company is planning to buy a set of special tools for its grinding operation. The cost of the tools is $18,000. The tools have a three-year life and qualify for the use of the three-year MACRS. The tax rate is 40 percent; the cost of capital is 12 percent.

You must use the Exhibit 19B.1 and Exhibit 19B.2 present value tables and Exhibit 19.5 to solve the following problems.

Required:

1. Calculate the present value of the tax depreciation shield, assuming that straight-line depreciation with a half-year life is used. Round intermediate calculations and your final answer to the nearest dollar.