Your firm is considering a project that would require purchasing $7.2 million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if thefirm's tax rate is 20% using the alternative depreciation methods below. Note that because the depreciation tax shield is essentially a riskless cash flow(assuming thefirm's tax rate remainsconstant), the appropriate cost of capital to evaluate the benefit from accelerated depreciation is therisk-free rate; assume this rate is 9% for all maturities.

a.Straight-line over a10-year period, with the first deduction starting in one year.

b.Straight-line over afive-year period, with the first deduction starting in one year.

c. Using MACRS depreciation with afive-year recovery period and starting immediately.

d.100% bonus depreciation(all the depreciation expense occurs when the asset is put intouse, in this caseimmediately).