Submit your solution to the problem in an Excel file. Explain your answer as necessary and be sure your calculations are clearly shown.

ABC Corporation is large and profitable. This year it is considering buying factory equipment for $100,000,000. ABCs cost of capital is 7%.

Required:

a) What is the after-tax cost of the equipment if it qualifies for 100% bonus depreciation?

b) What is the after-tax cost of the equipment if it is depreciated using MACRS (7 year recovery period)?

c)How might the tax treatment of the purchase affect ABCs decision?

d) Comment on the economic policy purpose of Congress in enacting bonus depreciation.