equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 30%. The company p epreciation a. What is the annual depreciation expense associated with this equipment? b. What is the annual depreciation tax shield? c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for the five-year life of the property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule. d. If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which schedule should it choose? Why? e. How might your answer to part (d) change if Markov anticipates that its marginal corporate tax rate will increase substantially over the next five years? Note: Assume that the equipment is put into use in year 1. a. What is the annual depreciation expense associated with this equipment? The annual depreciation expense is $2.14 million. (Round to three decimal places.) b. What is the annual depreciation tax shield? The annual depreciation tax shield is $.642 million (Round to three decimal places.) c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for the five-year life of the property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule. The depreciation tax shield for year 1 is $ 0.642 million. (Round to three decimal places.) The depreciation tax shield for year 2 is million. (Round to three decimal places.)
equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 30%. The company p epreciation a. What is the annual depreciation expense associated with this equipment? b. What is the annual depreciation tax shield? c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for the five-year life of the property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule. d. If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which schedule should it choose? Why? e. How might your answer to part (d) change if Markov anticipates that its marginal corporate tax rate will increase substantially over the next five years? Note: Assume that the equipment is put into use in year 1. a. What is the annual depreciation expense associated with this equipment? The annual depreciation expense is $2.14 million. (Round to three decimal places.) b. What is the annual depreciation tax shield? The annual depreciation tax shield is $.642 million (Round to three decimal places.) c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for the five-year life of the property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule. The depreciation tax shield for year 1 is $ 0.642 million. (Round to three decimal places.) The depreciation tax shield for year 2 is million. (Round to three decimal places.)
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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 30%. The company p
epreciation
a. What is the annual depreciation expense associated with this equipment?
b. What is the annual depreciation tax shield?
c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for the five-year life of the property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule.
d. If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which schedule should it choose? Why?
e. How might your answer to part (d) change if Markov anticipates that its marginal corporate tax rate will increase substantially over the next five years?
Note: Assume that the equipment is put into use in year 1.
a. What is the annual depreciation expense associated with this equipment?
The annual depreciation expense is $2.14 million. (Round to three decimal places.)
b. What is the annual depreciation tax shield?
The annual depreciation tax shield is $.642 million (Round to three decimal places.)
c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for the five-year life of the property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule.
The depreciation tax shield for year 1 is $ 0.642 million. (Round to three decimal places.)
The depreciation tax shield for year 2 is million. (Round to three decimal places.)
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