Question
Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $480,000. Of this sum, $60,000
Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $480,000. Of this sum, $60,000 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 capital investment. In the latter case, the company could depreciate the $60,000 straight-line over 5 years. The tax rate is 30% and the opportunity cost of capital is 5%.
What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense?
What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment?
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Personal Financial Planning For Executives And Entrepreneurs
Authors: Michael J. Nathanson, Jeffrey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati, Stephen R. Stelljes
1st Edition
3030405273, 978-3030405274
