What is the present value of the interest tax shield

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Reference no: EM131183110

According to the Modified Accelerated Cost Recovery System (MACRS) of depreciation imposed by US tax law, autos in computers must be depreciated the following way for tax purposes: Year one 20%, Year two 32%, Year three 19.20%, Year four 11.52%, Year five 11.52%, Year six 5.76%.

A. What is the present value of the interest tax shield from the purchase of an automobile for $50,000, with the cost of capital of 10% and a tax rate of 34%?

B. What would be the effect of a change in the tax law from MACRS to straight-line depreciation?

Reference no: EM131183110

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