What is the project depreciation tax shield

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Premier Watches Inc. is considering investing $125 million in a new plant for producing a new line of watches. The plant has an expected life of five years and expected sales of 12,000 watches per year. Fixed costs are $60 million a year, and variable costs are $2,000 per watch. The watches will be priced at $10,000 per watch. The plant will be depreciated straight-line over the five years to a salvage value of $0. Premier's opportunity cost of capital is 8% and Premier's effective tax rate is 21%.

 

What is the project's depreciation tax shield for years 1 through 5?

What is the present value of the project's depreciation tax shield?

What is the project's NPV?

Reference no: EM133110515

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