Question

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 the firm's tax rate is 30%, the appropriate cost of capital is 8%, and the equipment can be depreciated:

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

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

c. Fully as an immediate deduction.

Answer #1

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