Markov Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its corporate tax rate is 20%. The company plans to use straight-line depreciation.a. What is the annual depreciation expense associated with this equipment?b. What is the annual depreciation tax shield?c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for five-year property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule.d. If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which should it choose? Why?e. How might your answer to part (d) change if Markov anticipates that its marginal corporate tax rate will change substantially over the next five years?a. What is the annual depreciation expense associated with this equipment?The annual depreciation expense is $million. (Round to three decimal places.)b. What is the annual depreciation tax shield?The annual depreciation tax shield is $million. (Round to three decimal places.)c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for five-year property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule.The depreciation tax shield year 0 is $million. (Round to three decimal places.)The depreciation tax shield year 1 is $The depreciation tax shield year 2 is $The depreciation tax shield year 3 is $million. (Round to three decimal places.)million. (Round to three decimal places.)million. (Round to three decimal places.)million. (Round to three decimal places.)The depreciation tax shield year 4 is $The depreciation tax shield year 5 is $million. (Round to three decimal places.)d. If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which should it choose? Why? (Select the best choice below.)O A. With MACRS, the firm receives the depreciation tax shields sooner. Thus, MACRS depreciation leads to a higher NPV of Markov's FCF.O B. With either method, the total depreciation tax shield is the same. Therefore, it does not matter which method is used.O C. With straight-line depreciation, the firm's depreciation expenses are lower intially, leading to higher earnings. Thus, straight-line depreciation leads to a higher NPV of Markov's FCF.OD. None of the above.e. How might your answer to part (d) change if Markov anticipates that its marginal corporate tax rate will change substantially over the next five years? (Select the best choice below.)O A. Markov may be better off using the straight-line method if it expects its tax rate to increase substantially in later years.O B.Markov may be better off using the straight-line method if it expects its tax rate to decrease substantially in later years.O C. Even if its tax rate is expected to change, Markov is better off using MACR depreciation rather than straight-line depreciation.O D. None of the above.

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Markov Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its corporate tax rate is 20%. The company plans to use straight-line depreciation. a. What is the annual depreciation expense associated with this equipment? b. What is the annual depreciation tax shield? c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for five-year property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule. d. If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which should it choose? Why? e. How might your answer to part (d) change if Markov anticipates that its marginal corporate tax rate will change substantially over the next five years? a. What is the annual depreciation expense associated with this equipment? The annual depreciation expense is $ million. (Round to three decimal places.) b. What is the annual depreciation tax shield? The annual depreciation tax shield is $ million. (Round to three decimal places.) c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for five-year property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule. The depreciation tax shield year 0 is S million. (Round to three decimal places.) The depreciation tax shield year 1 is $ million. (Round to three decimal places.) The depreciation tax shield year 2 is $ The depreciation tax shield year 3 is S The depreciation tax shield year 4 is $ The depreciation tax shield year 5 is $ million. (Round to three decimal places.) million. (Round to three decimal places.) million. (Round to three decimal places.) million. (Round to three decimal places.) debt Fo JHACO -

Markov Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its corporate tax rate is 20%. The company plans to use straight-line depreciation. a. What is the annual depreciation expense associated with this equipment? b. What is the annual depreciation tax shield? c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for five-year property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule. d. If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which should it choose? Why? e. How might your answer to part (d) change if Markov anticipates that its marginal corporate tax rate will change substantially over the next five years? a. What is the annual depreciation expense associated with this equipment? The annual depreciation expense is $ million. (Round to three decimal places.) b. What is the annual depreciation tax shield? The annual depreciation tax shield is $ million. (Round to three decimal places.) c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for five-year property. Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule. The depreciation tax shield year 0 is S million. (Round to three decimal places.) The depreciation tax shield year 1 is $ million. (Round to three decimal places.) The depreciation tax shield year 2 is $ The depreciation tax shield year 3 is S The depreciation tax shield year 4 is $ The depreciation tax shield year 5 is $ million. (Round to three decimal places.) million. (Round to three decimal places.) million. (Round to three decimal places.) million. (Round to three decimal places.) debt Fo JHACO -

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 17P: The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will...

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