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ABC Products needs to replace its rawhide tanning and molding equipment. It can be used for...

ABC Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 6%. The firm's tax rate is 34%. The CCA rate is 20% (Class ??.What is the present value of the depreciation tax shield? Select one: a. $277,177 b. $258,913 c. $236,959 d. $186,000 e. $120,888

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Answer #1
Equipment cost 930000
Salvage value 0
Year 5
Depreciation per year 186000
Tax rate 34%

So the nearest option is option (d) 186,000. The difference in the above value is due to rounding off of the present values.

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