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Just having trouble finding the right total for the one block Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new
Just having trouble finding the right total for the one block
Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight- line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Answer is complete and correct. Year Year Year Year Year Year Year rear rear rear Year 3 Year rear Year Year 6 rear rear rear rear Year 10 Total Total 2 A 5 8 9 Straight-line Schedule Straight-line, 10-year Tax Shields at 40% TC PV (Tax Shields) at 10% $ 1.0 $ 1.0 $ 0.4 $ 0.4 $ 0.4 $ 0.3 $ 1.0 $ 0.4 $ 0.3 $ 1.0 $ 0.4 $ 0.3 $ 1.0 $ 1.0 $ 0.4 $ 0.4 $ 0.2 $ 0.2 $ 1.0 $ 0.4 $ 0.2 $ 1.0 $ 0.4 $ 0.2 $ 1.0 $ 0.4 $ 0.2 $ 1.0 $ 0.4 $ 0.2 $ 10.0 $ 4.0 $ 2.5 b. Suppose that the government allows companies to use double-declining-balance depreciation with the option to switch at any point to straight-line. Now what is the present value of the depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) X Answer is complete but not entirely correct. Double decline Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Total otal 7 2 5 6 9 Double decline Schedule Start of Year Book Value Depreciation Tax Shields at 40% TC PV (Tax Shields) at 10% $10.0 $ 2.0 $ 0.8 $ 0.7 $ 8.0 $ 1.6 $ 0.6 $ 0.5 $ 6.4 $ 1.3 $ 0.5 $ 0.4 $ 5.1 $ 1.0 $ 0.4 $ 0.3 $ 4.1 $ 0.8 $ 0.3 $ 0.2 Year Year Year Year 10 $ 3.3 $ 2.6 $ 2.0 $ 1.3 $ 0.7 $ 0.7 $ 0.7 $ 0.7 $ 0.7 $ 0.7 $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $43.5 % $ 10.0 $ 4.0 $ 2.7Step by Step Solution
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