Find the present value of the depreciation tax

Reference no: EM1349470

BeyTravel Agency is a small firm owned byDavid Bey that has just purchased $20,000 worth of computer upgrades. Under current tax laws, Bey has a choice of expensing or depreciating a small investment such as this. Bey's marginal tax rate is 40%.
a. What is the present value of the depreciation tax shield if the computers are depreciated straight line over the next five years? The cost of capital is 10%.
b. What is the present value of the tax saving if the computers are expensed immediately?
c. Would you recommend that Bey expense or capitalize this investment?

Reference no: EM1349470

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