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Please show work Suppose that Sudbury Mechanical Drifters is proposing to invest $11.6 million in a new factory. It can depreciate this investment straight-line over
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Suppose that Sudbury Mechanical Drifters is proposing to invest $11.6 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 10%. a. What is the present value of Sudbury's depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Answer is complete and correct. Straight-line Schedule Straight-line, 10-year Tax Shields at 40% Tc PV (Tax Shields) at 10% Year Year Year Year Year Year Year Year Year Year Total 1 2. 3 4 5 6 7 8 9 10 $ 1.2$ 1.2$ 1.2$ 1.2$ 1.2$ 1.2$ 1.2$ 1.2$ 1.2$ 1.2$ 11.6 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 4.6 $ 0.4 $ 0.4 $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ 0.2 $ 0.2$ 0.2$ 0.2 $ 2.9 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.) X Answer is complete but not entirely correct. Double decline Schedule Start of Year Book Value Depreciation Tax Shields at 40% Tc PV (Tax Shields) at 10% Year Year Year Year Year Year Year Year Year Year Total 1 2 3 4 5 6 7 8 9 10 $ 11.6$ 9.3 $ 7.4$ 5.9 $ 4.8 $ 3.8 $ 3.0 $ 2.4 X $ 2.0 X $ 1.6 X $ 11.6X $ 2.3 $ 1.9 $ 1.5$ 1.2$ 1.0 $ 0.8 $ 0.6 X $ 0.5 X $ 0.4 X $ 0.3 X $ 10.4 X $ 0.9 $ 0.7$ 0.6$ 0.5$ 0.4$ 0.3 0.2 X $ 0.2X 0.2X $ 0.1X $ 4.1X $ 0.8$ 0.6$ 0.4$ 0.3 $ 0.2$ 0.2$ 0.1X $ 0.1$ 0.1$ 0.0 X $ 3.0 XStep by Step Solution
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