Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company's tax rate is 20 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year).

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1,
$329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this
asset, and the company's tax rate is 20 percent. Use Exhibit A.8 and Exhibit A.9.
Required:
a. Compute the present value of the tax shield resulting from depreciation.
b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year).
Complete this question by entering your answers in the tabs below.
Required A Required B
Compute the present value of the tax shield resulting from depreciation.
Note: Round PV factor to 3 decimal places.
Present value of the tax shield
< Required A
Required B >
Transcribed Image Text:Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company's tax rate is 20 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year). Complete this question by entering your answers in the tabs below. Required A Required B Compute the present value of the tax shield resulting from depreciation. Note: Round PV factor to 3 decimal places. Present value of the tax shield < Required A Required B >
Exhibit A.9
Present Value of an Annuity of $1
Year 1/2%
1
2
0.995
1.985 1.970
2.970
3.950
4.926
5.896
6.862
7.823
8.779
10
9.730
11 10.677
12
13
14
15
3
4
5
25%
30% 35% 40%
1% 2%
0.990 0.980
1.942
2.941 2.884
3.902 3.808
4.853 4.713
5.795 5.601
6.728 6.472
4% 5% 6% 8% 10% 12% 14% 15% 16% 18% 20% 22%
24%
0.962 0.952
0.943
0.926 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.820
0.806 0.800 0.769 0.741 0.714
1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.626 1.605 1.566 1.528 1.492 1.457 1.440 1.361 1.289 1.224
2.775 2.723 2.673 2.577 2.487 2.402 2.322 2.283 2.246 2.174 2.106 2.042 1.981 1.952 1.816 1.696 1.589
3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.855 2.798 2.690 2.589 2.494 2.404 2.362 2.166 1.997 1.849
4.452 4.329 4.212 3.993 3.791 3.605 3.433 3.352 3.274 3.127 2.991 2.864 2.745 2.689 2.436 2.220 2.035
5.242 5.076 4.917 4.623 4.355 4.111 3.889 3.784 3.685 3.498 3.326 3.167 3.020 2.951 2.643 2.385 2.168
6.002 5.786 5.582 5.206 4.868 4.564 4.288 4.160 4.039 3.812 3.605 3.416 3.242 3.161 2.802 2.508 2.263
6.733 6.463 6.210 5.747 5.335 4.968 4.639 4.487 4.344 4.078 3.837 3.619 3.421 3.329 2.925 2.598 2.331
7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.772 4.607 4.303 4.031 3.786 3.566 3.463 3.019 2.665 2.379
7.722
6.145 5.650 5.216 5.019 4.833 4.494 4.192 3.923 3.682 3.571 3.092 2.715 2.414
8.306
6.495
5.938 5.453 5.234 5.029 4.656
4.327 4.035 3.776 3.656 3.147 2.752 2.438
9.385 8.863 8.384
6.814 6.194 5.660 5.421 5.197 4.793 4.439 4.127 3.851 3.725 3.190 2.779 2.456
7.103 6.424 5.842 5.583 5.342 4.910 4.533 4.203
3.780 3.223
6.002
6.811 6.142
7.652
7.325
8.566
8.162
9.471
8.983
8.111
10.368 9.787
8.760
7.360 6.710
7.887 7.139
7.536
11.619 11.255 10.575
12.556 12.134 11.348 9.986
9.394 8.853
7.904
3.912
2.799
2.469
9.899 9.295
8.244
7.367
6.628
5.724 5.468 5.008
3.962
3.824 3.249
2.814
2.478
13.489 13.004 12.106 10.563
14.417 13.865 12.849 11.118 10.380 9.712 8.559
4.611 4.265
4.675 4.315 4.001 3.859
7.606
5.847 5.575 5.092
3.268
2.825
2.484
6
7
8
9
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Transcribed Image Text:Exhibit A.9 Present Value of an Annuity of $1 Year 1/2% 1 2 0.995 1.985 1.970 2.970 3.950 4.926 5.896 6.862 7.823 8.779 10 9.730 11 10.677 12 13 14 15 3 4 5 25% 30% 35% 40% 1% 2% 0.990 0.980 1.942 2.941 2.884 3.902 3.808 4.853 4.713 5.795 5.601 6.728 6.472 4% 5% 6% 8% 10% 12% 14% 15% 16% 18% 20% 22% 24% 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.820 0.806 0.800 0.769 0.741 0.714 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.626 1.605 1.566 1.528 1.492 1.457 1.440 1.361 1.289 1.224 2.775 2.723 2.673 2.577 2.487 2.402 2.322 2.283 2.246 2.174 2.106 2.042 1.981 1.952 1.816 1.696 1.589 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.855 2.798 2.690 2.589 2.494 2.404 2.362 2.166 1.997 1.849 4.452 4.329 4.212 3.993 3.791 3.605 3.433 3.352 3.274 3.127 2.991 2.864 2.745 2.689 2.436 2.220 2.035 5.242 5.076 4.917 4.623 4.355 4.111 3.889 3.784 3.685 3.498 3.326 3.167 3.020 2.951 2.643 2.385 2.168 6.002 5.786 5.582 5.206 4.868 4.564 4.288 4.160 4.039 3.812 3.605 3.416 3.242 3.161 2.802 2.508 2.263 6.733 6.463 6.210 5.747 5.335 4.968 4.639 4.487 4.344 4.078 3.837 3.619 3.421 3.329 2.925 2.598 2.331 7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.772 4.607 4.303 4.031 3.786 3.566 3.463 3.019 2.665 2.379 7.722 6.145 5.650 5.216 5.019 4.833 4.494 4.192 3.923 3.682 3.571 3.092 2.715 2.414 8.306 6.495 5.938 5.453 5.234 5.029 4.656 4.327 4.035 3.776 3.656 3.147 2.752 2.438 9.385 8.863 8.384 6.814 6.194 5.660 5.421 5.197 4.793 4.439 4.127 3.851 3.725 3.190 2.779 2.456 7.103 6.424 5.842 5.583 5.342 4.910 4.533 4.203 3.780 3.223 6.002 6.811 6.142 7.652 7.325 8.566 8.162 9.471 8.983 8.111 10.368 9.787 8.760 7.360 6.710 7.887 7.139 7.536 11.619 11.255 10.575 12.556 12.134 11.348 9.986 9.394 8.853 7.904 3.912 2.799 2.469 9.899 9.295 8.244 7.367 6.628 5.724 5.468 5.008 3.962 3.824 3.249 2.814 2.478 13.489 13.004 12.106 10.563 14.417 13.865 12.849 11.118 10.380 9.712 8.559 4.611 4.265 4.675 4.315 4.001 3.859 7.606 5.847 5.575 5.092 3.268 2.825 2.484 6 7 8 9 ان اسلالوار امامات ahal Jud ..... ala-
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