Question

Asked Nov 13, 2019

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Firm X needs 1 computer. Firm X can buy 1 computer for 3,059. The cost of debt for Firm X is 5%. The corporate tax equals 35%. Firm X follows a straight-line depreciation method and the economic life of the computer is 2 years. Compute the depreciation tax shield of year 2.

Step 1

Cost of the Computer = $3,059

Economic Life of the Computer = 2 Years

Disposal Value of the Computer = $0

Calculation of the depreciation expense is as follows:

Step 2

As the Firm X uses the straight-line method for depreciation, then depreciation for both year is $1529.50

Depreciation Expense of ...

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