Question

Rush Corporation plans to acquire production equipment for $622,500 that will be depreciated for tax purposes...

Rush Corporation plans to acquire production equipment for $622,500 that will be depreciated for tax purposes as follows: year 1, $124,500; year 2, $214,500; and in each of years 3 through 5, $94,500 per year. A 12 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent. a. Compute the present value of the tax shield resulting from depreciation. b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($124,500 per year). (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Rush Corporation plans to acquire production equipment for $612,500 that will be depreciated for tax purposes...
Rush Corporation plans to acquire production equipment for $612,500 that will be depreciated for tax purposes as follows: year 1, $122,500; year 2, $212,500; and in each of years 3 through 5, $92,500 per year. A 14 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. (Round PV factor to 3 decimal places and...
Depreciation Tax Shields Lincoln Company has purchased equipment for $200,000. After it is fully depreciated, the...
Depreciation Tax Shields Lincoln Company has purchased equipment for $200,000. After it is fully depreciated, the equipment will have no salvage value. Lincoln may select either of the following depreciation schedules for tax purposes: Option 1 Option 2 Year Depreciation Depreciation 1 $40,000 $20,000 2 64,000 40,000 3 38,400 40,000 4 23,040 40,000 5 23,040 40,000 6 11,520 20,000 Assuming a 40% tax rate and a 12% desired annual return, compute the total present value of the tax savings provided...
Depreciation Tax Shields Lincoln Company has purchased equipment for $500,000. After it is fully depreciated, the...
Depreciation Tax Shields Lincoln Company has purchased equipment for $500,000. After it is fully depreciated, the equipment will have no salvage value. Lincoln may select either of the following depreciation schedules for tax purposes: Option 1 Option 2 Year Depreciation Depreciation 1 $100,000 $50,000 2 160,000 100,000 3 96,000 100,000 4 57,600 100,000 5 57,600 100,000 6 28,800 50,000 Assuming a 40% tax rate and a 12% desired annual return, compute the total present value of the tax savings provided...
Consider an equipment that costs $242,000 and is depreciated straight-line to zero over its seven-year tax...
Consider an equipment that costs $242,000 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a five-year project. At the end of the project the asset can be sold for $55,000. The tax rate is 21 percent. What is the after-tax salvage value? $63,757.14 b. $45,500.00 c. $57,970.00 d. $53,805.15 e. $66,242.86
WXY Co plans a new four-year expansion project that requires an initial fixed asset investment of...
WXY Co plans a new four-year expansion project that requires an initial fixed asset investment of $1.67 million. The fixed asset will be depreciated straight-line to zero over its four-year tax life, after which time it will have a market value of $435,000. No bonus depreciation will be taken. The project requires an initial investment in net working capital of $198,000, all of which will be recovered at the end of the project. The project is estimated to generate $1,850,000...
Consider an asset that costs $404,800 and is depreciated straight-line to zero over its 6-year tax...
Consider an asset that costs $404,800 and is depreciated straight-line to zero over its 6-year tax life. The asset is to be used in a 3-year project; at the end of the project, the asset can be sold for $50,600.    If the relevant tax rate is 21 percent, what is the aftertax cash flow from the sale of this asset?
Bethlehem Company plans to replace an old piece of equipment that has no book value for...
Bethlehem Company plans to replace an old piece of equipment that has no book value for tax purposes and no salvage value. The replacement equipment will provide annual cash savings of $8,000 before income taxes. The equipment costs $20,000 and will have no salvage value at the end of its five-year life. Bethlehem uses straight-line depreciation method for both book and tax purposes. The company incurs a 40% marginal tax rate, and its after-tax cost of capital is 14%. Required:...
Consider an asset that costs $705,000 and is depreciated straight-line to zero over its eight-year tax...
Consider an asset that costs $705,000 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $153,000. If the relevant tax rate is 24 percent, what is the aftertax cash flow from the sale of this asset? (Do not round intermediate calculations.) After tax salvage value ?
Consider an asset that costs $220,000 and is depreciated straight-line to zero over its 5-year tax...
Consider an asset that costs $220,000 and is depreciated straight-line to zero over its 5-year tax life. The asset is to be used in a 3-year project; at the end of the project, the asset can be sold for $27,500. Required : If the relevant tax rate is 32 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.)
Bethlehem Company plans to replace an old piece of equipment that has no book value for...
Bethlehem Company plans to replace an old piece of equipment that has no book value for tax purposes and no salvage value. The replacement equipment will provide annual cash savings of $8,000 before income taxes. The equipment costs $20,000 and will have no salvage value at the end of its five-year life. Bethlehem uses straight line depreciation method for both book and tax purposes. The company incurs a 40% marginal tax rate, and its after-tax cost of capital is 14%....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT