Compute the present value of the depreciation tax benefit

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Reference no: EM133496364

Case: Yankee Freight provides truck freight services throughout the northeast United States. The firm is considering an investment in improved logistics management requiring a main-frame computer and communications software, which would cost $1,100,000 and have an expected life of eight years. For tax purposes, the investment will be depreciated using the straight-line method, with no salvage value. The company's cost of capital and tax rates are 8 and 30 percent, respectively.

Question 1: Compute the present value of the depreciation tax benefit.

Question 2: Assume instead that Yankee Freight uses the double-declining-balance method of depreciation for tax purposes with a five-year life. Compute the present value of the depreciation tax benefit.

Reference no: EM133496364

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