Question

Your firm is considering a project that would require purchasing $ 7.2 million worth of new...

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.

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