Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your firm is considering a project that would require purchasing $ 7.4 million worth of new equipment. Determine the present value of the depreciation tax

Your firm is considering a project that would require purchasing $ 7.4 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 20 % using the alternative depreciation methods below. Note that because the depreciation tax shield is essentially a riskless cash flow (assuming the firm's tax rate remains constant), the appropriate cost of capital to evaluate the benefit from accelerated depreciation is the risk-free rate; assume this rate is 9 % for all maturities.

a. Straight-line over a 10-year period, with the first deduction starting in one year.

b. Straight-line over a five-year period, with the first deduction starting in one year.

c. Using MACRS depreciation with a five-year recovery period and starting immediately.

d. 100% bonus depreciation (all the depreciation expense occurs when the asset is put into use, in this case immediately).

please answer and explanation with excel

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Land Economics Research

Authors: Joseph Ackerman, Marion Clawson, Marshall Harris

1st Edition

1317340426, 9781317340423

More Books

Students also viewed these Economics questions