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Present value of incremental tax shields

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The Rumpel Felt Company purchased a felt press last year at a cost of $15,000. The division manager reports that for $14,000 (including installation), a new telt press can be bought. Both machines are in Class 43 with a 30% depreciation rate. The old machine's current market value is $11,000. The new press will be used tor two years and then sold tor $4,000. If the old press is not replaced, then it could be sold for $3,000 in two years. What is the present value of incremental tax shields in the terminal year? The tax rate is 40% and Rumpel's cost 01 capital is 10%.

Reference no: EM133070537

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