Question: Suppose a project requires purchasing equipment worth $20 M. Determine the total present value of the depreciation tax shield associated with this equipment if the

Suppose a project requires purchasing equipment worth $20 M. Determine the total present value of the depreciation tax shield associated with this equipment if the firms tax rate is 40%; use 8% as the cost of capital.

Assume the equipment needed for the project is depreciated according to MACRS 5-year depreciation schedule:

5-year MACRS:

Year 0: 20%

Year 1: 32.0%

Year 2: 19.2%

Year 3: 11.52%

Year 4: 11.52%

Year 5: 5.76%

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