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Your firm is considering a project that would require purchasing $ 7 . 5 million worth of new equipment. Determine the present value of the
Your firm is considering a project that would require purchasing $ 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 using the alternative depreciation methods below. Note that because the depreciation tax shield is essentially a riskless cash flowassuming the firm's tax rate remains constant the appropriate cost of capital to evaluate the benefit from accelerated depreciation is the riskfree rate; assume this rate is for all maturities.
a Straightline over ayear period, with the first deduction starting in one year.
b Straightline over a fiveyear period, with the first deduction starting in one year.
c Using MACRS depreciation with a fiveyear recovery period and starting immediately.
d bonus depreciationall the depreciation expense occurs when the asset is put into use, in this case immediately
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