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Compute the present value of the tax shield

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Reference no: EM132103825

Question - Rush Corporation plans to acquire production equipment for $620,000 that will be depreciated for tax purposes as follows: year 1, $124,000; year 2, $214,000; and in each of years 3 through 5, $94,000 per year. An 10 percent discount rate is appropriate for this asset, and the company's tax rate is 40 percent.

Required:

(a) Compute the present value of the tax shield resulting from depreciation.

(b) Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($124,000 per year).

Reference no: EM132103825

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