A cooperative that makes value-added products like jams and jellies has voted to purchase a new machine to fill their jars. The machine costs $23,000 and has a investment life of 9 years. The IRS will allow them to depreciate it over 10 years. The marginal tax rate will be 25% over the next 10 years and the inflation rate will be 1%. The cooperative requires a 8% pre-tax rate of return and the risk premium is 4%. What is the present value of the tax savings from depreciation? Group of answer choices $3,447 $3,744 $3,717 $3,498 None of the answers are correct

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A cooperative that makes value-added products like jams and jellies has voted to purchase a new machine to fill their jars. The machine costs $23,000 and has a investment life of 9 years. The IRS will allow them to depreciate it over 10 years. The marginal tax rate will be 25% over the next 10 years and the inflation rate will be 1%. The cooperative requires a 8% pre-tax rate of return and the risk premium is 4%. What is the present value of the tax savings from depreciation?

Group of answer choices

$3,447

$3,744

$3,717

$3,498

None of the answers are correct

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