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What is the npv of tax savings of depreciation

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Wendy's boss wants to use straight-line depreciation for the new expansion project because he said it will give higher net income in earlier years and give him a larger bonus. The project will last 6 years and requires $1,709,347 of equipment. The company could use either straight line or the 3-year MACRS accelerated method (the machine falls in this category according to IRS). Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its life. The applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The company's WACC is 10.0%, and its tax rate is 20.0%. What is the NPV of tax savings of depreciation (also called depreciation tax-shield) using the MACRs rates?

Reference no: EM132693272

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