Assume your tax rate is 21% and that your WACC is 10%. You purchase an asset with a 4-year life today for $1,000,000. The salvage value at the end of 4 years is $0. Calculate the PV of the depreciation tax shield in the following two situations: You depreciate the asset on a straight-line basis. You depreciate the asset using 3-year MACRS. The appropriate MACRS percentages for years 1-4 will be 0.3333, 0.4445, 0.1481, 0.0741.

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