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NPV with Income Taxes: Straight$-$Line versus Accelerated Depreciation

Carl William, Inc. is a conservatively managed boat company whose motto is$,$ "The old ways are the good ways." Management has always used straight$-$line depreciation for tax and external reporting purposes. Although they are reluctant to change, they are aware of the impact of taxes on a project's profitability.

Required

For a typical $$240,000$ investment in equipment with a five$-$year life and no salvage value, determine the present value of the advantage resulting from the use of double$-$declining balance depreciation as oppos to straight$-$line depreciation. Assume an income tax rate of $21\%$ and a discount rate of $20\%.$ Also assume that there will be a switch from double$-$declining balance to straight$-$line depreciation in the fourth year.

Note: Round your answers below to the nearest whole dollar.

$\backslash$table$[[$Present value of double$-$declining balance tax shield,$$,$