Question
Your firm is considering a project that would require purchasing $7.8 million worth of new equipment. Determine the present value of the depreciation tax shield
Your firm is considering a project that would require purchasing $7.8 million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if the firm's tax rate is 36%, the appropriate cost of capital is 7%, and the equipment can be depreciated:
a. Straight-line over a ten-year period, with the first deduction starting in one year.
The present value of the depreciation tax shield associated with this equipment is ?million.
b. Straight-line over a five-year period, with the first deduction starting in one year.
The present value of the depreciation tax shield associated with this equipment is ?million.
c. Using MACRS depreciation with a five-year recovery period and starting immediately.
The present value of the depreciation tax shield associated with this equipment is ?million.
d. Fully as an immediate deduction.
The present value of the depreciation tax shield is ? million
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The Basics Of Public Budgeting And Financial Management
Authors: Charles E. Menifield
4th Edition
0761872116, 978-0761872115
