You are investing in a piece of equipment that you just bought for $2,300,000. You paid an extra $100,000 for shipping and installation. You intend to use this equipment to produce a product that you think will have market appeal for the coming ten years. The useful life the equipment is 15 years. You decide to use the straight-line depreciation method for determining the annual accounting depreciation expense. At the end of the projects life, the equipment will still have five years of useful remaining. You estimate its market price at the end of the life of the project at $1,000,000. Your marginal tax rate is 25%.

1. Calculate annual depreciation expense
2. Calculate the after-tax salvage value of the equipment at the end of year ten.

Repeat the above two calculations if you assume a straight-line depreciation for the equipment over the ten-year life of the project down to a book value of $600,000. All the remaining parameters stay the same.