Calculate the present value of depreciation tax savings on a depreciable asset with a purchase price of

Question:

Calculate the present value of depreciation tax savings on a depreciable asset with a purchase price of $5 million and zero salvage value, assuming a 10 % discount rate, a 34 % tax rate, and the following type of depreciation:

a. The asset is depreciated over a 3-year life according to Table 9.1.

b. The asset is depreciated over a 7-year life according to Table 9.1.

c. The asset is depreciated over a 20-year life according to Table 9.1.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...