Zeta Corp. purchased a machine for $1,500 million. The machine has a functional life of 10 years with no salvage value. According to Canada Revenue Agency (Canadian government tax department)s tax rules (Capital Cost Allowance, or CCA), the depreciation of this machine uses a straight-line approach (i.e., the same amount per year for its lifetime, until it depreciates to zero). The EBITDA (in net cash flow) generated by the machine is $300 million in year 1 and then declines by a rate of 10% per year for the next 9 years. An income tax rate of 35% applies to the companys net income if positive. If the net income is negative, no tax will be collected. Taxes are paid out in cash. The required rate of return for the company is 10% per year. There are no debt obligations associated with this machine.

a) Complete the Table below. Show your calculations.

b) What is the (present) value of the taxes paid by Zeta Corp.?

Zeta Corp. purchased a machine for $1,500 million. The machine has a functional life of 10 years with no salvage value. According to Canada Revenue Agency (Canadian government tax department)'s tax rules (Capital Cost Allowance, or CCA), the depreciation of this machine uses a straight-line approach (i.e., the same amount per year for its lifetime, until it depreciates to zero). The EBITDA (in net cash flow) generated by the machine is $300 million in year 1 and then declines by a rate of 10% per year for the next 9 years. An income tax rate of 35% applies to the company's net income if positive. If the net income is negative, no tax will be collected. Taxes are paid out in cash. The required rate of return for the company is 10% per year. There are no debt obligations associated with this machine. a) Complete the Table below. Show your calculations. b) What is the (present) value of the taxes paid by Zeta Corp.? c) The CFO of Zeta Corp. is aware of the importance of cash flows in valuation, and he knows that depreciation is a non-cash item, and he can manipulate this to improve the valuation of the company. Instead of using the straight-line approach, the CFO decide to use the following schedule for depreciation (in millions of CAD): Verify that the CFO does not overclaim the depreciation expense (i.e., the total depreciation over the lifetime of the machine does not exceed its initial cost). d) Complete the table below (in millions of CAD): e) The CFO claims that by changing the depreciation schedule in his way, he can improve the value of the firm. Do you agree? Explain with supporting calculations