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Calculate depreciation tax shield for project in year

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Reference no: EM132663610

Problem 1: Your firm needs a computerized machine tool lathe that costs $50,000 and requires $12,000 in maintenance for each year of its three-year life. After three years, this machine will be replaced. The machine falls into the MACRS three-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent. Calculate the depreciation tax shield for this project in year 3.

Problem 2: If the lathe in the previous problem can be sold for $5,000 at the end of year 3, what is the after-tax salvage value?

Reference no: EM132663610

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