SevedHelpMs. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $560,000. Of this sum, $70,000Is 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 $70,000 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

Present value is a measure of the current worth of a future amount of money or stream of cash flows.…

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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