Rush Corporation plans to acquire production equipment for $617,500 that will be depreciated for tax purposes as follows: year 1, $123,500; year 2, $213,500; and in each of years 3 through 5, $93,500 per year. An 8 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. Compute the present value of the tax shield resulting from depreciation. (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.) Present value of the tax shield b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($123,500 per year). Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($123,500 per year). (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.) Present value of the tax shield
Exercise A-13 (Algo) Present Value of Cash Flows
Rush Corporation plans to acquire production equipment for $617,500 that will be depreciated for tax purposes as follows: year 1, $123,500; year 2, $213,500; and in each of years 3 through 5, $93,500 per year. An 8 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent. Use Exhibit A.8 and Exhibit A.9.
Required:
a. Compute the present value of the tax shield resulting from depreciation.
Compute the present value of the tax shield resulting from depreciation. (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)
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b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($123,500 per year).
Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($123,500 per year). (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)
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