Question
Tax rate=40%, WACC=16% Equipment Cost=$100 Additional Working Capital Required=$10 Book value at the end of year 5=0 Salvage value at the end of year 5=20
Tax rate=40%, WACC=16% Equipment Cost=$100 Additional Working Capital Required=$10
Book value at the end of year 5=0
Salvage value at the end of year 5=20
1. Find the cash flow for the initial period, period 0. Find the after-tax salvage value. Find the terminal period after-tax cash flow.
2. Why is accelerated depreciation beneficial for a firm even though it reduces net income in the early periods of a project?
3. Tax rate=40%. Annual depreciation for current equipment=$100. Annual depreciation for new equipment=$300. Find the incremental depreciation tax shield.
Tax rate=40%, WACC=16% Equipment Cost=$100 Additional Working Capital Required=$10
Book value at the end of year 5=0
Salvage value at the end of year 5=20
1. Find the cash flow for the initial period, period 0. Find the after-tax salvage value. Find the terminal period after-tax cash flow.
2. Why is accelerated depreciation beneficial for a firm even though it reduces net income in the early periods of a project?
3. Tax rate=40%. Annual depreciation for current equipment=$100. Annual depreciation for new equipment=$300. Find the incremental depreciation tax shield.
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