Problem 6-18 Depreciation and project NPV Suppose that Sudbury Mechanical Drifters is proposing to invest $11.3 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.) Straight-line Schedule Straight-line, 10-year Tax Shields at 40% Tc PV (Tax Shields) at 10% Year 1 Year 2 $ 1.1 $ 1.1 $ 0.5 $ $ 0.4 $ Year 3 Year 4 Year 5 Year 6 Year 7 $ 1.1 $ 1.1 $ 1.1 S 1.1 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.4 $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ Year 8 Year 9 Year 10 Total $ 1.1 $ 1.1 $ 1.1 $ 1.1 $11.3 0.5 $ 0.5 $ 0.5 $ 0.5 $ 4.5 0.2 $ 0.2 $ 0.2 $ 0.2 $ 2.8 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.) Answer is complete but not entirely correct. Year Double decline Schedule Year 1 Year 2 Year 3 Year 5 Year 6 Year 7 Year 8 Year 9 Total 10 S 11.3 $ 9.0 $ 7.2 $ 4.6 $ 3.7 $ 3.0 $ 22 S 14 S 0.6S 11.3 X Start of Year Book Value Depreciation $ 2.3 $ $ 1.80 1.8 $ 1.4 S 0.9 S 0.7 S 0.8 $ 0.8 $ 0.8 S 0.6 S 11.30 Tax Shields at 40% Tc $ 0.9 $ 0.7 $ 0.6 $ 0.4 S 0.3 $ $0.30 0.3 $ 0.3 $ 0.2 $ 4.5 $ 0.3 $ 0.2 PV (Tax Shields) at 10% $ 0.8 $ 0.6 $ 0.4 $ 0.2S 0.2 $ 0.1 $ 0.1 S 0.1 $ 3.00 Year 4 $ 5.8 $ 1.2 $ 0.5 $ 0.3