Your company is considering a new project that will require $2,000,000 of new equipmentat the start of the project. The equipment will have a depreciable life of 10 years and will bedepreciated to a book value of $250,000 using straight-line depreciation. The cost ofcapital is 12 percent, and the firm's tax rate is 39 percent. Estimate the present value of thetax benefits from depreciation. $68,250 $385, 628 $175,000 $106,750

To estimate the present value of the tax benefits from depreciation, calculate the annual tax shield…

Answered: Your company is considering a new…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 11P

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Your company is considering a new project that will require $2,000,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $250,000 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 $68,250 $988,789 $175,000 $207,646
Your Company is considering a new project that will require $10,000 of new equipment at the start of the project. The equipment will have a depreciable life of 5 years and will be depreciated to a book value of $3,000 using straight-line depreciation. The cost of capital is 9%, and the firm's tax rate is 21%. Estimate the present value of the tax benefits from depreciation. $1,400 $1,106 $1,144 $294

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