Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $580,000. Of this sum, $68,000is described by the supplier as an installation cost. Ms. Potts does not know whether the company will need to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $68,000 straight-line overfive years.How will the tax authority's decision affect the after-tax cost of the kiln? The tax rate is 25%, and the opportunity cost of capital is 8%.Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.> Answer is complete but not entirely correct.PV Tax shield15,741✔ After-tax cost is smaller13,575X After-tax cost is largerInstallation cost is expensed at the end of year 1If installation cost is capitalized and depreciated over 5 years$$33

The term "after-tax cost" is frequently used to estimate the full economic impact of a financial…

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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