Reference no: EM13894361
Your firm is considering a project that would require purchasing $7.1 million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if the firm's tax rate is 36%, the appropriate cost of capital is 9%, and the equipment can be depreciated:
a. Straight-line over a ten-year period, with the first deduction starting in one year.
The present value of the depreciation tax shield associated with this equipment is ? million.
b. Straight-line over a five-year period, with the first deduction starting in one year.
The present value of the depreciation tax shield associated with this equipment is ? million.
c. Using MACRS depreciation with a five-year recovery period and starting immediately.
The present value of the depreciation tax shield associated with this equipment is ? million.
d. Fully as an immediate deduction.
The present value of the depreciation tax shield is ? Million.
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