A company makes a capital acquisition that costs $1 million dollars, and the company’s tax rate is 35%, which is paid at the end of the year. The relevant discount rate is 6%. The company can take depreciation charges of $500,000 both this year and next, or it can take a depreciation charge of $300,000 this year and $700,000 next year. 

Which would the company prefer to do? 

How much does the company save by using the better option? 

Assume the corporation’s net income is high enough that it always pays taxes.

Answer rating: 100% (QA)

To determine which depreciation option the company should choose we need to calculate the present va... View the full answer