Present value of the tax shield resulting from depreciation

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Reference no: EM132054001

Rush Corporation plans to acquire production equipment for $622,500 that will be depreciated for tax purposes as follows: year 1, $124,500; year 2, $214,500; and in each of years 3 through 5, $94,500 per year. A 12 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent. Use Exhibit A.8and Exhibit A.9.

Required:

a. Compute the present value of the tax shield resulting from depreciation. (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)

b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($124,500 per year). (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)

Reference no: EM132054001

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