Suppose that Sudbury Mechanical Drifters is proposing to invest $10.7 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 12%.

a. What is the present value of Sudbury's depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Answer is complete and correct Year Year Year Year Year Year Year Year Year Year Straight-line Schedule Total 1 3 4 6 7 8 10 Straight-line, 10-year $ 1.1 S 1.1 1.1 S 1.1 S 1.1 1.1 1.1 $ 1.1 1.1 1.1 $10.7 $ 0.4 0.4 0.4 S 0.4 0.4 S 0.4 S 0.4 0.4 0.4 S 0.4 4.3 Tax Shields at 40 % Tc PV (Tax Shields) at 12% S 0.4 S0.3 0.3 S 0.3 S 0.2 0.2 0.2 S 0.2 0.2 0.1 $ 2.4 b. Suppose that the government allows companies to use double-declining-balance depreciation with the option to switch at any point to straight-line. Now what is the present value of the depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Answer is complete but not entirely correct. Year Year Year Year Year Year Year Year Year Year Double decline Schedule Total 5 1 2 3 4 7 10 Start of Year Book Value $ 10.7 S 8.6 S 6.8 $ 5.5 S 4.4 3.5 2.8 S 2.2 X S 1.8 S 1.4 48.6 x Depreciation 2.1 1.7 1.4 1.1 $ 0.9 $ 0.7 0.6x$ 0.4(xS 0.4 S 0.3 x 9.7 x Tax Shields at 40% Tc 0.4 S0.3 S 0.2 x S 0.2 X S 0.1 x 0.1 S 3.9 x S 0.9 0.7 0.5 S 0.4 PV (Tax Shields) at 12% $ 0.8 0.5 0.4 $ 0.3 $ 0.2 $ 0.1 0.1 S 0.1 $ 0.1 0.0( 2.6x