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 theExhibit 19B.1andExhibit 19B.2present value tables andExhibit 19.5to 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.

$

2.Calculate the present value of the tax depreciation shield, assuming that MACRS is used. Round intermediate calculations and your final answer to the nearest dollar.

$