Question: 1-Depreciation does not involve a cash flow, yet we consider cash flows from the depreciation tax-shield. What is the depreciation tax-shield, and how does it

1-Depreciation does not involve a cash flow, yet we consider cash flows from the depreciation tax-shield. What is the depreciation tax-shield, and how does it produce a cash flow?

2-Suppose a firm buys and asset, depreciates it over its 10-year MACRS life, and then sells it for $100,000 15 years from the time it had bought it. Without performing any calculations, describe the tax consequences related to the assets purchase, depreciation, and sale.

3-Mamas Goulash Company is considering purchasing a washer. The dishwasher cost $50,000 and would be depreciated over three years using MACRS. After three years, Mamas plans to sell the dishwasher for $10,000. The tax rate is 40%. What are the cash flows related to the acquisition of the dishwasher? What are the cash flows related to the disposition of the dishwasher?

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