In year zero, a corporation acquires P300,000 worth of equipment. It decides to utilize straight line depreciation over the equipment's estimated 30-year life. The current interest rate is 14%. What is the current value of the depreciation tax shield if the company's overall tax rate is 50%? Show your solution.

In year zero, a corporation acquires P300,000 worth of equipment. It decides to utilize straight line depreciation over the equipment's estimated 30-year life. The current interest rate is 14%. What is the current value of the depreciation tax shield if the company's overall tax rate is 50%? Show your solution.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company’s tax rate is 20 percent. Required: Compute the present value of the tax shield resulting from depreciation. 2. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year).
Your company is considering a new project that will require $2,000,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $250,000 using straight-line depreciation. The cost of capital is 12 percent, and the firm's tax rate is 21 percent. Estimate the present value of the tax benefits from depreciation. Multiple Choice $68,250 $988,789 $175,000 $207,646
As a member of UA Corporation's financial staff, you must estimate the Year 1 cash flow for a proposed project with the following data. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. What is the Year 1 cash flow? Do not round the intermediate calculations and round the final answer to the nearest whole number. Sales revenues, each year $45,500 Other operating costs $22,522 Interest expense $4,000 Tax rate 25.0%
Karsted Air Services is now in the final year of a project. The equipment originally cost $28 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $6 million, and its tax rate is 30%. What is the equipment's after- tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar.
Karsted Air Services is now in the final year of a project. The equipment originally cost $27 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $6 million, and its tax rate is 30%. What is the equipment's after-tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar.
Karsted Air Services is now in the final year of a project. Theequipment originally cost $29 million, of which 75% has been depreciated. Karsted can sellthe used equipment today for $8 million, and its tax rate is 35%. What is the equipment’safter-tax salvage value?
Karsted Air Services is now in the final year of a project. The equipment originally cost $29 million, of which 85% has been depreciated. Karsted can sell the used equipment today for $7.25 million, and its tax rate is 30%. What is the equipment's after-tax salvage value? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. $
8) The Shell Corp. owns a piece of petroleum drilling equipment that costs &100,000 and will be depreciated by Straight-line depreciation with B=$100,000, N=5 years, S=$0. There is a combined 40% tax rate. Shell will lease the equipment to others each year and receive $50,000 per year. At the end of 3 years, the firm will sell the equipment for $20,000. If the firm requires a 10% after-tax rate of return, what is the PW of the investment?
What is the expected after - tax cash flow from selling a piece of equipment if Probst purchases the equipment today for $548, 860.00, the tax rate is 39.9 percent, the equipment will be sold in 3 years for $98, 800.00, and the equipment will be depreciated to $72, 600.00 over 12 years using straight - line depreciation? $106, 885.74 (plus or minus $10) $262, 538.29 (plus or minus $10) - $72, 688.20 (plus or minus $10) $230,867.00 (plus or minus $10) None of the above is within $10 of the correct answer
A corporation expects to receive $32,000 each year for 15 years if a particular project is undertaken. There will be an initial investment of $150,000. The expenses associated with the project are expected to be $7500 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 28% marginal tax rate, and determine the project’s after-tax rate of return.
Your Company is considering a new project that will require $1,090,000 of new equipment at the start of the project. The equipment will have a depreciable life of 7 years and will be depreciated to a book value of $484,500 using straight-line depreciation. The cost of capital is 14%, and the firm's tax rate is 21%. Estimate the present value of the tax benefits from depreciation (closest to). Multiple Choice $77,897 $86,500 Help Save & Exit $18,165 Se