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A firm buys a piece of equipment for $107,611.00 and will depreciate using the 3-year MACRS...

A firm buys a piece of equipment for $107,611.00 and will depreciate using the 3-year MACRS schedule. If the tax rate is 40.00%, what is the present value of the depreciation tax shield if the cost of capital is 15.00%?

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Answer #1
Year Depreciation rate Depreciation Tax shield @40% PVIF @ 15% Present value
0 $0.00 1 $              -  
1 33.33% $35,867 $14,346.70 0.869565217 $ 12,475.39
2 44.45% $47,833 $19,133.24 0.756143667 $ 14,467.48
3 14.81% $15,937 $6,374.88 0.657516232 $    4,191.58
4 7.41% $7,974 $3,189.59 0.571753246 $    1,823.66
$ 32,958.11
PV of tax shield = $ 32,958.11
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