Ms. T. Potts, the treasurer of Ideal China, has a problem. the company has just ordered a new kiln for $448,000. Of this sum, $56,000 is described by the supplier as installation cost. Ms Potts does not know whether the IRS will premit the company to treat the cost as a tax deductable current expense or as a capital investment. In the latter case, the company could depreciate the $56,000 using the 5 year MACRS tax depreication schedule. The tax rate us 35% 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 part of the capital investment ?