Your company is considering a new project that will require $10,000 of new equipment at the...

 

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Your company is considering a new project that will require $10,000 of new equipment at the start of the project. The equipment will have a depreciable life of five years and will be depreciated to a book value of zero using straight-line depreciation. The cost of capital (discount rate) is 20 percent, and the firm's tax rate is 10 percent. Estimate the present value of the tax benefits from depreciation. Your company is considering a new project that will require $10,000 of new equipment at the start of the project. The equipment will have a depreciable life of five years and will be depreciated to a book value of zero using straight-line depreciation. The cost of capital (discount rate) is 20 percent, and the firm's tax rate is 10 percent. Estimate the present value of the tax benefits from depreciation.

Answer rating: 100% (QA)

To estimate the present value of the tax benefits from depreciation we can calculate the tax shield ... View the full answer