Discount rate to compute net present value

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Reference no: EM13866537

In Year 0, Company L paid $80,000 for an overhaul of a tangible operating asset. Company L has a 34 percent marginal tax rate and uses an 8 percent discount rate to compute net present value. a) Compute the after-tax cost of the overhaul if Company L can deduct the $80,000 payment as a repair in Year 0. b) Compute the after-tax cost of the overhaul if Company L must capitalize the $80,000 payment to the asset account. Assume that Company L can recover its remaining basis in the asset ratably in years 0, 1, 2, and 3. (Compute the present value of the tax savings each year for each of four years, starting in year 0, and subtract this amount from $80,000.)

Reference no: EM13866537

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