NPV with Income Taxes: Straight$-$Line versus Accelerated Depreciation

Carl William, Inc. is a conservatively managed boat company whose motto is$,$The old ways are the good ways.$$ Management has always used straight$-$line depreciation for tax and external reporting purposes. Although they are reluctant to change, they are aware of the impact of taxes on a project$$s profitability.

Required

For a typical $$180,000$ investment in equipment with a five$-$year life and no salvage value, determine the present value of the advantage resulting from the use of double$-$declining balance depreciation as opposed to straight$-$line depreciation. Assume an income tax rate of $21\%$ and a discount rate of $20\%.$ Also assume that there will be a switch from double$-$declining balance to straight$-$line depreciation in the fourth year.

Note: Round your answers below to the nearest whole dollar.

Present value of double$-$declining balance tax shield Answer

$0$

Present value of straight$-$line tax shield Answer

$0$

Advantage of double$-$declining balance depreciation Answer

$0$