The depreciation tax shield measures a company's tax savings, in a given year, from being able to
Question:
The "depreciation tax shield" measures a company's tax savings, in a given year, from being able to deduct depreciation expenses from taxable income (i.e., the amount that your total taxes decrease due to depreciation). A firm has invested$10million this year in new equipment. If this equipment can be depreciated, straight-line, over ten years (i.e.,10%depreciation a year), and if the firm pays corporate taxes at a rate of22%what is the depreciation tax shield in the first year of this project? - The IRR is the discount rate (cost of capital, required return, etc.) that gives a project an NPV of zero - IRR and NPV rules often give you the same answer about whether to pursue a project. But, they don't always agree! - Example: a project requires an initial investment in year zero of$400,000. Cash flows are$200,000,$200,000, and$350,000in years 1,2 , and 3 . What is the IRR of this project?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill