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...

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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…
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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…
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You are contemplating the replacement of an old printing machine with a new model costing $63,000. The old machine, which originally cost $40,000, has 6 years of expected life remaining and the current book value of $14,000 versus the current market value of $21,000. The firm's corporate tax rate is 24 percent. If the company sells the old machine at the market value, what is the initial after-tax cash outlay for the new printing machine purchase?
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