Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $416,000. Of this sum, $52,000is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit thecompany to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company coulddepreciate the $52,000 straight-line over 5 years. The tax rate is 30% and the opportunity cost of capital is 5%.a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense?b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment? (Round youranswer to the nearest whole dollar amount.)a. Present valueb. Present value

Time valuevalue received today by an individual is of more worth than that of receiving the same…

Answered: Ms. T. Potts, the treasurer of Ideal…

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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