Rush Corporation plans to acquire production equipment for $612,500 that will be depreciated for tax purposes as follows: year 1, $122,500; year 2, $212,500; and in each of years 3 through 5, $92,500 per year. A 14 percent discount rate is appropriate for this asset, and the company's tax rate is 40 percent.

Required:

a.Compute the present value of the tax shield resulting from depreciation.

b.Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($122,500 per year).