Question

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%?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

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
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
A firm has just purchased a new piece of equipment for $50,000.  The equipment will cost an...
A firm has just purchased a new piece of equipment for $50,000.  The equipment will cost an additional $2,000 to be delivered and installed.  Based on IRS guidelines, the equipment will be depreciated using a 3-year MACRS schedule.  The firm plans on using the equipment for three years and then selling the equipment for $15,000.  The tax rate facing the firm is 30%.  What will be the cash flow from selling the equipment in three years?
"A company bought a piece of equipment for $302,000. The company is using the 7 year...
"A company bought a piece of equipment for $302,000. The company is using the 7 year MACRS property class to depreciate the asset for tax purposes. At the end of year 5, the company sold the equipment for $178,000. The tax rate is 29%. What is the tax that the company pays from the sale of the equipment?"
"A company bought a piece of equipment for $302,000. The company is using the 7 year...
"A company bought a piece of equipment for $302,000. The company is using the 7 year MACRS property class to depreciate the asset for tax purposes. At the end of year 5, the company sold the equipment for $178,000. The tax rate is 29%. What is the tax that the company pays from the sale of the equipment?"
Suppose a firm could choose between the following 3 different depreciation schedules to depreciate a $100...
Suppose a firm could choose between the following 3 different depreciation schedules to depreciate a $100 investment. The required rate of return is 10% and your tax rate is 34%. All else equal (no risk, no other tax implications), which depreciation schedule maximizes firm value? Depreciation Schedule Year 1 Year 2 Year 3 Year 4 MACRS 33.33% 44.45% 14.81% 7.41% DCRS 7.41% 14.81% 44.45% 33.33% Straight-line 25.00% 25.00% 25.00% 25.00% Group of answer choices Both MACRS and DCRS depreciation Both...
A firm has just purchased a new piece of equipment for $23,000. The equipment will cost...
A firm has just purchased a new piece of equipment for $23,000. The equipment will cost an additional $2,000 to be delivered and installed. Based on IRS guidelines, the equipment will be depreciated using a 5-year MACRS schedule. The firm plans on using the equipment for three years and then selling the equipment for $15,000. The tax rate facing the firm is 34%. What will be the cash flow from selling the equipment in three years? $11,956 $9,852 $12,348 $12,152...
Your firm is considering a project that would require purchasing  $7.9 million worth of new equipment. Determine...
Your firm is considering a project that would require purchasing  $7.9 million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if the​ firm's tax rate is  20% using the MACRS depreciation with a​ five-year recovery period and starting immediately. Note that because the depreciation tax shield is essentially a riskless cash flow​ (assuming the​ firm's tax rate remains​ constant), the appropriate cost of capital to evaluate the tax benefit from depreciation is the​...
Question "A company bought a piece of equipment for $254,000. The company is using the 7-year...
Question "A company bought a piece of equipment for $254,000. The company is using the 7-year MACRS property class to depreciate the asset for tax purposes. At the end of year 5, the company sold the equipment for $99,000. The tax rate is 36%. What is the tax that the company pays from the sale of the equipment?"
Sticky Sam buys a piece of equipment for $61,400 that has a useful life of 4...
Sticky Sam buys a piece of equipment for $61,400 that has a useful life of 4 years. The equipment will generate operating cash flows of $18,550 per year and will have no salvage value at end of expected life. The income tax rate is 30%. Straight line depreciation is used. What is the net present value using a 6% required rate of return?
A firm purchased a piece of equipment for $200,000 exactly 8 years ago. At that time,...
A firm purchased a piece of equipment for $200,000 exactly 8 years ago. At that time, the company decided to depreciate the equipment using straight-line depreciation over a 10 year period. Today, the firm can sell the equipment for $100,000, and the firm has a tax rate of 30%. If the firm sells the equipment today, what will be the NSV?
Your firm just bought a new piece of equipment for $80,000. The shipping cost was $10,000....
Your firm just bought a new piece of equipment for $80,000. The shipping cost was $10,000. The machinery will generate $38,000 of additional revenue per year. It has an economic life of 4 years and falls into the MACRS 3-year class. At the end of 4 years, the equipment can be sold for $15,000 No additional working capital will be needed. The tax rate is 30%. The cost of capital is 8%. A) what is the initial investment at time...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT