Question: An investment project involves the purchase of equipment at a

An investment project involves the purchase of equipment at a cost of $ 100 million. For tax pur-poses, the equipment has a life of five years and will be depreciated on a straight- line basis. Inflation is expected to be 5 percent and the real interest rate is 5 percent. The tax rate is 40 percent. What is the present value of the depreciation tax shield for the machine?
Source: R. Watts.


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  • CreatedDecember 15, 2014
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