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aleksandrvk [35]
3 years ago
10

Your firm needs a machine which costs $260,000, and requires $47,000 in maintenance for each year of its 10 year life. After 5 y

ears, this machine will be replaced. The machine falls into the MACRS 10-year class life category. Assume a tax rate of 40% and a discount rate of 14%. What is the depreciation tax shield for this project in year 10?
Business
1 answer:
Aleks04 [339]3 years ago
3 0

Answer:

nominal tax shield in year 10: 6,812 dollars

present value of the tax shield: 1,837.49

Explanation:

the nominal tax shield in year 10:

We look into the MACRS table for 10-years property class: 6.55%

The depreciation expense for this year is 260,000 x 6.55% = 17,030

Then this produces a tax shield of 40% 6,812

The nominal tax shield at year 10 is 6,812 dollars

considering time value of money today this tax shield is worth:

\frac{6812}{(1 + 0.14)^{10} } = PV  

PV: 1,837.49

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​Electric, Inc. was incorporated on January​ 1, 2016. Electric issued​ 4,000 shares of common stock and​ 1,200 shares of preferr
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