Question

Your firm is considering a project that would require purchasing $7.5 million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if the firm's tax rate is 40%, the appropriate cost of capital is 8%, and the equipment can be depreciated
a. Straight-line over a 10-year period, with the first deduction starting in one year.
b. Straight-line over a five-year period, with the first deduction starting in one year.
c. Using MACRS depreciation with a five-year recovery period and starting immediately.
d. Fully as an immediate deduction.



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  • CreatedAugust 06, 2014
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