What are the annual cca tax shields for first five years

Assignment Help Financial Management

Reference no: EM131343161

Spherical Manufacturing recently spent $19 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's marginal corporate tax rate is 34%.

a. What are the annual CCA deductions associated with this equipment for the first five years?

b. What are the annual CCA tax shields for the first five years?

c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 10% per year?

d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 10% per year?

e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years?

Reference no: EM131343161

Questions Cloud

Use the cboe options valuation tool : You are cautiously bullish on a stock, currently priced at $10 per share. So, you buy 100 shares at $10 and sell a call option ("write a covered call option") with an exercise price of $12 for which you collect $1.20 per share. Use the CBOE Options V..

Write covered call option : You are cautiously bullish on a stock, currently priced at $10 per share. So, you buy 100 shares at $10 and sell a call option ("write a covered call option") with an exercise price of $12 for which you collect $1.20 per share. You were wrong, and th..

How much will be your profit on this position : You purchase one IBM July 120 call contract for a premium of $5. You hold the option until the expiration date when IBM stock sells for $123 per share. How much will be your profit on this position?

Consider portfolio comprised of four risky securities : Consider a portfolio comprised of four risky securities. Assume the economy has three states with varying probabilities of occurrence. Which one of the following will guarantee that the portfolio variance will equal zero?

What are the annual cca tax shields for first five years : Spherical Manufacturing recently spent $19 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's marginal corporate tax rate is 34%. What are the annual CCA deductions associat..

What is the company competitive lease-rental rate : The Clarkton Company produces industrial machines, which have five-year lives. Clarkton is willing to either sell the machines for $30,000 or lease them at a rental that because of competitive factors yields an after-tax return to Clarkton of 6% (its..

The most critical variable in the black-scholes model : Explain how an option’s delta/gamma and a bond’s duration/convexity are similar. Suppose you own an American call option on a stock that does not pay common dividends. The call option has one month until expiration. Under what circumstances would you..

What is one of the main advantages of a corporation : Steady? Company's stock has a beta of 0.17. If the? risk-free rate is 6.1% and the market risk premium is 7.1%?, what is an estimate of Steady? Company's cost of? equity? what is one of the main advantages of a corporation? What are the three financi..

What is the bond invoice price : A bond with a 7% coupon rate makes payments on January 15 and July 15 of each year (181-day coupon period). On January 30 (15 days have passed since the last semiannual coupon was paid), the ask price for the bond was reported as 100.0625. On April 1..

User Account

All Pages