Calculate the value of the tax shield one and tax shield two

Assignment Help Financial Management

Reference no: EM13885054

The company has just ordered a new kiln for $480,000. Of this sum, $58,000 is described by the supplier as an installation cost. The company does not know whether the Internal Revenue Service (IRS) will permit to treat this cost as a tax-deductible first-year expense or as a capital investment.

In the latter case, the company could depreciate the $58,000 using the five-year MACRS tax depreciation schedule. Assume the tax rate is 35% and the opportunity cost of capital is 8%.

Calculate the value of the tax shield 1 and tax shield 2. (Note: Use Tax shield 1 as an expense treatment and tax shield 2 as 5 year MACRS.) (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Solve for Tax shield 1 (as an expense treatment) $

Solve for Tax shield 2 (as 5 year MACRS) $

Reference no: EM13885054

Questions Cloud

Discounting-according to economic theory : Discounting. According to economic theory, agricultural land values (prices) equal the present value of expected future rents, where rents are calculated as the difference between revenue received and production costs. Houses. Suppose you have an off..

Consider the spot interest rates for maturities of one : Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 3.8% r2 = 4.2% r3 = 4.9% r4 = 5.7% Assuming a constant real interest rate of 2 percent, what are the approximate expected inflation rates for the next ..

A treasury bill has a bid yield : A Treasury bill has a bid yield of 3.46% and an ask yield of 3.4%. The bill matures in 120 days. Assume a face value of $1,000. What is the least you could pay to acquire a bill?

What will be the required return on your portfolio : You have been managing a $5 million portfolio that has a beta of 1.00 and a required rate of return of 12%. The current risk-free rate is 5.00%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.70, what wi..

Calculate the value of the tax shield one and tax shield two : The company has just ordered a new kiln for $480,000. Of this sum, $58,000 is described by the supplier as an installation cost. The company does not know whether the Internal Revenue Service (IRS) will permit to treat this cost as a tax-deductible f..

Treasury STRIP-semi-annual compounding : Treasury STRIP (semi-annual compounding) has a 4% YTM and 15 years to maturity. What is the $ amount capital appreciation expected over the coming year if YTMs remain unchanged?

Perfect a process for converting seawater into crude oil : A group of nerds perfect a process for converting seawater into crude oil. In order to keep their process off the market, OPEC offers license to process by paying the nerds an annual royalty payment of $100,000,000 starting one year from now, and the..

Process for converting seawater into crude oil : A group of nerds perfect a process for converting seawater into crude oil. In order to keep their process off the market, OPEC offers license to process by paying the nerds an annual royalty payment of $100,000,000 starting one year from now, and the..

Invest in certificates of deposit : Raya Mutual Fund of Kuala Lumpur has RM5 million to invest in certificates of deposit (CDs) for the next six months (180 days). It can buy either a CIMB Bank CD with an annual yield of 10% or a Mumbai (India) Bank CD with a yield of 12.5%. Determine ..

User Account

All Pages