Your company is considering a new project that will require $1,033,000 of new eq

Question

Your company is considering a new project that will require $1,033,000 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 $153,000 using straight-line depreciation. The cost of capital is 13 percent, and the firm

Your company is considering a new project that will require $1,033,000 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 $153,000 using straight-line depreciation. The cost of capital is 13 percent, and the firm

Explanation / Answer

Hi,

Please find the answer as follows:

Annual Depreciation = (Cost - Salvage Value)/Life of the Project = (1033000 - 153000)/10 = 88000

Tax Savings on Depreciation = 88000*.34 = 29920

Present Value of Tax Savings = 29920/(1+.13)^1 + 29920/(1+.13)^2 + 29920/(1+.13)^3 + 29920/(1+.13)^4 + 29920/(1+.13)^5 + 29920/(1+.13)^6 + 29920/(1+.13)^7 + 29920/(1+.13)^8 + 29920/(1+.13)^9 + 29920/(1+.13)^10 = 162353.20

Answer is 162353.20.

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.