Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight line over 10 years. The tax rate is 40% and the discount rate is 10%.

a)What is the present value of Sudburys depreciation tax shields? How does the ability to deduct depreciation change the net present value of the project?

b)What would be the present value of the tax shield if the government allowed Sudbury to write off the factory immediately?

explain/show equations