Question #2

1. Miller Corp. is considering a new three-year expansion project that requires an initial fixed asset investment of $900,000. The fixed asset will be depreciated by the straight-line method over its three-year useful life. And, the salvage value is zero. Assume the tax rate is 35%. What is the depreciation tax shield per year? 105,000 The three-year MACRS depreciation schedule is given as follows. MACRS Year percentage 1 33.33% 2 44.45% 3 14.81% 4 7.41% Following #1, if the company could have switched from the straight-line method to the MACRS depreciation method, how would this change the depreciation tax shield in the 2nd year? It will be increased if the MACRS method is used. It will remain the same. It will be decreased if the MACRS method is used