Your company is considering a new project that will require $790,000 of new equipment at the start of the project. The equipment will have adepreciable life of 5 years and will be depreciated to a book value of $255,000 using straight-line depreciation. The cost of capital is 12%, and the firm'stax rate is 21%. Estimate the present value of the tax benefits from depreciation.Multiple ChoiceO$84,530$22,470$107,000$80,999

Depreciation per year = ($790,000 - $255,000) / 5.= $107,000.

Answered: Your company is considering a new…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A 21%-tax bracket firm (Lessee) is considering the use, for two years, of a truck that costs $150,000 today. This firm can buy the asset or lease it from another 21%-tax bracket firm (Lessor) in exchange for $50,000 per year, with the first payment due at the time of signing. What is the Lessee's Time 0 incremental cash flow of buying the asset instead of leasing it?
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