Question
Grove Media plans to acquire production equipment for $810,000 that will be depreciated for tax purposes as follows: year 1, $322,000; year 2, $182,000; and
Grove Media plans to acquire production equipment for $810,000 that will be depreciated for tax purposes as follows: year 1, $322,000; year 2, $182,000; and in each of years 3 through 5, $102,000 per year. A 10 percent discount rate is appropriate for this asset, and the companys tax rate is 20 percent. Use Exhibit A.8 and Exhibit A.9.
Required:
a. Compute the present value of the tax shield resulting from depreciation. (Note: Round PV factor to 3 decimal places.)
Present value of the tax shield |
b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($162,000 per year). (Note: Round PV factor to 3 decimal places.)
Present value of the tax shield |
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