In 1999, we bought a small country motel. As a small business owner, we plan to run the motel for 10 years, then sell it on the market. The after-tax market value of the motel at the end of year 10 (i.e., 2009) is estimated to be $429,210.

When forecasting 10-year pro-forma income statements, sales and expenses (excluding depreciation) are based on the year 1999 dollars. The annual depreciation tax shield is $6,061. The annual operating FCF (i.e., "OCF" as referred in the class lecture) is $66,639.

We finance the purchase of the motel by debt (mortgage). The current balance (1999) of the debt: $295,625. Tax rate is 30.304%.

Real risky discount rate: 20%; Real risk-free discount rate: 7%

Nominal risky discount rate is 23.6%; Nominal risk-free discount rate is 10.21%

What is the present value of depreciation tax shield in 1999?