Mara Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. This equipment is expected to have a useful life of 5 years, and the marginal corporate tax rate is 35%. The company plans to use straight-line depreciation.

What is the annual depreciation expense associated with this equipment?

Find the annual depreciation tax shield. Depreciation tax shield = depreciation tax rate

Rather than straight-line depreciation, suppose they use MACRS depreciation for 5-year property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule.

Find the present value of the tax shields under each alternative. Use a discount rate of 6%.