Question
Rush Corporation plans to acquire production equipment for $622,500 that will be depreciated for tax purposes as follows: year 1, $124,500; year 2, $214,500; and
Rush Corporation plans to acquire production equipment for $622,500 that will be depreciated for tax purposes as follows: year 1, $124,500; year 2, $214,500; and in each of years 3 through 5, $94,500 per year. A 12 percent discount rate is appropriate for this asset, and the companys tax rate is 40 percent. 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 ($124,500 per year). (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)
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