Gen Combo Looseleaf Principles Of Corporate Finance With Connect Access Card
Gen Combo Looseleaf Principles Of Corporate Finance With Connect Access Card
13th Edition
ISBN: 9781260695991
Author: Richard A Brealey
Publisher: McGraw-Hill Education
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Chapter 6, Problem 18PS

Depreciation and project NPV Suppose that Sudbury Mechanical Drifters is proposing (o 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%.

  1. a) What is the present value of Sudbury’s depreciation tax shields?
  2. 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?
  3. c) What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately?
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