Spherical Manufacturing recently spent $$20$ million to purchase some equipment used in the manufacture of disk drives.

This equipment has a CCA rate of $25\%$ and Spherical's marginal corporate tax rate is $35\%.$

a$.$ What are the annual CCA deductions associated with this equipment for the first five years?

b$.$ What are the annual CCA tax shields for the first five years?

c$.$ What is the present value of the first five CCA tax shields if the appropriate discount rate is $12\%$ per year?

d$.$ What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate

discount rate is $12\%$ per year?

e$.$ How might your answer to part $($d$)$ change if Spherical anticipates that its marginal corporate tax rate will increase

substantially over the next five years?