part B

Suppose that Sudbury Mechanical Drifters is proposing to invest $11.2 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 12%. a. What is the present value of Sudbury's depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Straight-line Schedule Total Straight-line, 10-year Tax Shields at 40% Tc PV (Tax Shields) at 12% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 $ 1.11 $ 1.11 $ 1.11 $ 1.11 $ 1.1 s 1.11 s 1.1$ 1.11 $ 1.11 $ 1.1 $ 0.41 $ 0.4 $ 0.47 $ 0.41 $ 0.4 $ 0.4 $ 0.47 $ 0.4 $ 0.4 $ 04 $ 0.41 $ 0.4 $ 0.3 $ 0.3 $ 0.31 $ 0.27 s 0.2 $ 0.27 $ 0.2 $ 0.1 $ 112 $ 4.5 $ 2.5 b. Suppose that the government allows companies to use double-declining balance depreciation with the option to switch at any point to straight-line. Now what is the present value of the depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Double decline Schedule Year 8 Year 9 Year 10 Total $ 2.0 $ 2.0 Start of Year Book Value Depreciation Tax Shields at 40% Tc PV (Tax Shields) at 12% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 $ 11.27 s 9.0 $ 7.00 $ 6.07 $ 5.0 $ 4.01 s 3.0 $ 2.2 $ 0.9