A certain piece of equipment costs $32 million plus an additional $2 million to install. This equipment qualifies under the 5-year MACRS category. For a firm that discounts cash flows at 12 % and faces a tax rate of 34 %, what is the present value of the depreciation tax savings associated with this equipment? By how much would that number change if the firm could treat the $2 million installation cost as a deductible expense rather than include it as part of the depreciable cost of the asset?
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