Compute the present value of the after-tax cost ("PVATC") of purchasing 7-year equipment that your corporate client can depreciate using the appropriate MACRS table. The immediate before-tax cost was $2,350,000 and your after-tax discount rate is 9%. Assume that all tax savings occur at the end of the deduction year. Hint: carefully "map out" when all of the before-tax and tax cash flows occur and discount as needed. 

 

2. Same as #1, except that you can take 100% bonus depreciation on the equipment. How much lower is the PVATC in #2 than in #1? 

 

Answer rating: 100% (QA)

To compute the present value of the aftertax cost PVATC of purchasing 7year equipment we need to consider the following cash flows 1 Immediate beforet... View the full answer