Suppose that Sudbury Mechanical Drifters is proposing to invest $20.0 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of Sudbury's depreciation tax shields? Note: Enter your answers in millions rounded to 1 decimal place. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Depreciation straight-line, 10-year Tax Shields at 40% tax rate PV (Tax Shields) at 10% < Required A Required B >

Suppose that Sudbury Mechanical Drifters is proposing to invest $20.0 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of Sudbury's depreciation tax shields? Note: Enter your answers in millions rounded to 1 decimal place. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Depreciation straight-line, 10-year Tax Shields at 40% tax rate PV (Tax Shields) at 10% < Required A Required B >

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 17P: The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will...

See similar textbooks

Similar questions

Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of Sudbury's depreciation tax shields? Note: Enter your answers in millions rounded to 1 decimal place. Depreciation straight-line, 10-year Tax Shields at 40% tax rate PV (Tax Shields) at 10% Year 1 Year 2 Year 3 Year 4 Year 5 Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%. a. What is the present value of Sudbury's…
attached
Suppose that Sudbury Mechanical Drifters is proposing to invest $10.8 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 35%, and the discount rate is 10%. a. What is the present value of Sudbury's depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Total Year 10 Year 9 Year 8 Year 7 Year 6 Year 5 Year 4 Year 3 Year 2 Year 1 Straight-line Schedule $ 10.8 $ 1.1 $ 1.1 $ 1.1 $ 1.1 $ 1.1 $ 1.1 $ 1.1 $ $ 1.1 Straight-line, 10-year $ 1.1 1.1 $ 0.4 $ 0.4 $ 0.4 0.4 $ $ 0.4 0.4 $ 0.4 $ $ $ 0.4 $ 0.4 0.4 Tax Shields at 35% Tc PV (Tax Shields) at 10% b. Suppose that the government allows companies to use double-declining-balance depreciation with the option to switch at any point to straight-line. Now what is the present value of the depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Total Year 10 Year 9 Year 8 Year 7 Year 6 Year 5 Year 4 Year 3 Year 2 Year 1 Double decline…
The XYZ Company is considering a new project that will have an annual depreciation expense of $3.7 million. If XYZ's corporate tax rate is 13 %, then what is the value of the depreciation tax shield on their new project?
what is the present value of the tax shield for the following project? the initial investment is $300,000. the project will last for 6 years, at which time the asset will be sold for $90,000. the asset will be depreciated on a declining balance basis at a rate of 20 percent. the firm's marginal tax rate is 40 percent. the firm's required rate of return is 8 percent a) 16,204.36 b) 82,539.68 c) 98,744.04 d) 66,335.32
You are evaluating a project that will require an investment of $18 million that will be depreciated over a period of 18 years. You are concerned that the corporate tax rate will increase during the life of the project. a. Would this increase the accounting break-even point? b. Would it increase the NPV break-even point? a. Would this increase the accounting break-even point? b. Would it increase the NPV break-even point?
1. what amount should be used as the initial cash flow for this project and why?? 2. What is the after-tax salvage value for the spectrometer? 3. What is the MPV of the project? Should the firm accept or reject this project?
Consider the following case of Happy Turtle Transportation Company: Suppose Happy Turtle Transportation Company is considering a project that will require $400,000 in assets. • The company is small, so it is exempt from the interest deduction limitation under the new tax law. • The project is expected to produce earnings before interest and taxes (EBIT) of $40,000. Common equity outstanding will be 20,000 shares. • The company incurs a tax rate of 25%. If the project is financed using 100 % equity capital, then Happy Turtle Transportation Company's return on equity (ROE) on the project will be In addition, Happy Turtle's earnings per share (EPS) will be Alternatively, Happy Turtle Transportation Company's CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company's debt will be 12%. Because the company will finance only 50% of the project with equity, it will have only 10,000 shares outstanding. Happy Turtle Transportation…
your company is considering a new project that will require $250,000 of new equipment at the start of the project. The equipment will have a depreciable life of eight years and will be depreciated to a book value of $10,000 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 ___ $117,733 ___ $86,997 ___ $31,296 ___ $63,618
A Garry Manufacturing Company is considering a three-year project that has a cost of $75,000. The project will generate after-tax cash flows of $33,100 in Year 1, $31,500 in Year 2, and $31,200 in Year 3. Assume that the firm's proper rate of discount is 10% and that the firm's tax rate is 40%. What is the project's payback and outline any limitations in using the payback period method in selecting acceptable projects? Tetious Dimensions is introducing a new product that is expected to increase it net operating income by $775,000. Tetious Dimensions has a 21% marginal tax rate. This project will also produce $200,000 of depreciation per year. In addition, this project will cause the following changes: Without the Project With the Project Accounts Receivable $55,000 $89,000 Inventory $100,000…
Firm X is considering the replacement of an old machine with one that has a purchase price of $70,000. The current market value of the old machine is $22,000 but the book value is $ 37,000. The firm's combined tax rate is 27%. What is the net cash outflow for the new machine after considering the sale of the old machine? Disregard the effect of depreciation of the new machine if acquired.
Taxes are costs, and, therefore, changes in tax rates can affect consumer prices, project lives, and the value of existing firms. Evaluate the change in taxation on the valuation of the following project: Please find the project in the image attached to this question. Thank you Assumptions: Tax depreciation is straight-line over three years. Pre-tax salvage value is 25 in Year 3 and 50 if the asset is scrapped in Year 2. Tax on salvage value is 40% of the difference between salvage value and book value of the investment. The cost of capital is 20%. Please verify that the information above yields NPV = 0. If you decide to terminate the project in Year 2, what would be the NPV of the project? Suppose that the government now changes tax depreciation to allow a 100% write-off in Year 1. How does this affect your answers to parts a and b above? please explain in detail your Excel spreadsheet response.