m Out Zoom to Fit Hand Tool Start Reading Stop Reading Show Navigation Page Layout What is NPV if the firm uses MACRS depreciation with a S-year tax life? c. 24. Depreciation and Project Value. Ms. T. Pots, the treasurer of Ideal China, has a problem The company has just ordered a new kiln for $400,000. Of this sum, $$0,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capi- tal investment. In the latter case, the company could depreciate the $50,000 using the five-year MACRS tax depreciation schedule-The tax rate is 35% and the opportunity cost of capital is 5%, a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense? b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment?

2 m Out Zoom to Fit Hand Tool Start Reading Stop Reading Show Navigation Page Layout c. What is NPV if the firm uses MACRS depreciation with a 5-year tax life? 24. Depreciation and Project Value. Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $400,000. Of this sum, $50,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capi- tal investment. In the latter case, the company could depreciate the $50,000 using the five-year MACRS tax depreciation schedule. The tax rate is 35% and the opportunity cost of capital is 5%. a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense? b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment?