Question
Your firm is considering a project that would require purchasing $7.4million worth of new equipment. Determine the present value of the depreciation tax shield associated
Your firm is considering a project that would require purchasing $7.4million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if thefirm's tax rate is 35%,the appropriate cost of capital is 8 %8%,and the equipment can bedepreciated:
a.Straight-line over aten-year period, with the first deduction starting in one year.
b.Straight-line over afive-year period, with the first deduction starting in one year.
c. Using MACRS depreciation with afive-year recovery period and starting immediately.
d. Fully as an immediate deduction.
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