DEPRECIATION FROM TAX SHIELD S&S Corporation is making $65,600 investment in equ
ID: 2664336 • Letter: D
Question
DEPRECIATION FROM TAX SHIELD S&S Corporation is making $65,600 investment in equipment with a 5-year life. The company uses the straight-line method of depreciation and has a tax rate of 40%. The company’s required rate of return is 12 percent.What is the present value of the tax savings related to depreciation of equipment?
Round to 4 decimal places.
$______________________ DEPRECIATION FROM TAX SHIELD S&S Corporation is making $65,600 investment in equipment with a 5-year life. The company uses the straight-line method of depreciation and has a tax rate of 40%. The company’s required rate of return is 12 percent.
What is the present value of the tax savings related to depreciation of equipment?
Round to 4 decimal places.
$______________________
Explanation / Answer
Tax shield on deprciation = Depreciation * Tax rate
here Depreciation = 65,600 / 5 [Since it is folloing Straight line method]
= $65,600 / 5
= $13120
And tax rate = 40%
There fore Tax shield = $13120*40%
=$5248
the present value of the 5 yeaRS tax saving would be :
PVIFA (r,n)=[ 1- 1/(1+r)^n] / r
= [ 1- 1/(1.12)^5] / 0.12
=3.604
= $5248*3.6047
= $18917.4656
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