Spherical Manufacturing recently spent $11 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's marginal corporate tax rate is 32%. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 8% per year? d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 8% per year? e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years? a. What are the annual CCA deductions associated with this equipment for the first five years? The CCA deduction for year 1 is $ (Round to the nearest dollar) The CCA deduction for year 2 is $ (Round to the nearest dollar.) CCA deduction for year 3 is $ The CCA deduction for year 4 is $ (Round to the nearest dollar) (Round to the nearest dollar.)
Spherical Manufacturing recently spent $11 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's marginal corporate tax rate is 32%. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 8% per year? d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 8% per year? e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years? a. What are the annual CCA deductions associated with this equipment for the first five years? The CCA deduction for year 1 is $ (Round to the nearest dollar) The CCA deduction for year 2 is $ (Round to the nearest dollar.) CCA deduction for year 3 is $ The CCA deduction for year 4 is $ (Round to the nearest dollar) (Round to the nearest dollar.)
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:Spherical Manufacturing recently spent $11 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's marginal corporate tax rate is 32%.
a. What are the annual CCA deductions associated with this equipment for the first five years?
b. What are the annual CCA tax shields for the first five years?
c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 8% per year?
d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 8% per year?
e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years?
a. What are the annual CCA deductions associated with this equipment for the first five years?
The CCA deduction for year 1 is $
(Round to the nearest dollar.)
The CCA deduction for year 2 is $
(Round to the nearest dollar.)
The CCA deduction for year 3 is $
(Round to the nearest dollar.)
The CCA deduction for year 4 is $
The CCA deduction for year 5 is $
b. What are the annual CCA tax shields for the first five years?
The CCA tax shield for year 1 is $
The CCA tax shield for year 2 is $
(Round to the nearest dollar.)
(Round to the nearest dollar.)
(Round to the nearest dollar.)
The CCA tax shield for year 3 is $
The CCA tax shield for year 4 is $
(Round to the nearest dollar.)
The CCA tax shield for year 5 is $
(Round to the nearest dollar.)
c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 8% per year?
The present value of the first five CCA tax shields is $
(Round to the nearest dollar.)
d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 8% per year?
The present value of all the CCA tax shields is $
(Round to the nearest dollar.)
e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years? (Select the best choice below)
(Round to the nearest dollar.)
(Round to the nearest dollar.)
O A. If the marginal corporate tax rate increases over the next five years, the PV of the CCA tax shields will be the same as what is calculated in part (d).
O B. If the marginal corporate tax rate increases over the next five years, the PV of the CCA tax shields will be lower than what is calculated in part (d).
OC. If the marginal corporate tax rate increases over the next five years, the PV of the CCA tax shields will be higher than what is calculated in part (d).
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