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Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company's tax rate is 20 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year). Complete this question by entering your answers in the tabs below. Required A Required B Compute the present value of the tax shield resulting from depreciation. Note: Round PV factor to 3 decimal places. Present value of the tax shield < Required A Required B >

Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company's tax rate is 20 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year). Complete this question by entering your answers in the tabs below. Required A Required B Compute the present value of the tax shield resulting from depreciation. Note: Round PV factor to 3 decimal places. Present value of the tax shield < Required A Required B >

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 18E
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Exhibit A.9

Present Value of an Annuity of $1

Year 1/2% 1% 2% 4% 5% 6% 8% 10% 12% 14% 15% 16% 18% 20% 22% 24% 25% 30% 35% 40%
1 0.995 0.990 0.980 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.820 0.806 0.800 0.769 0.741 0.714
2 1.985 1.970 1.942 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.626 1.605 1.566 1.528 1.492 1.457 1.440 1.361 1.289 1.224
3 2.970 2.941 2.884 2.775 2.723 2.673 2.577 2.487 2.402 2.322 2.283 2.246 2.174 2.106 2.042 1.981 1.952 1.816 1.696 1.589
4 3.950 3.902 3.808 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.855 2.798 2.690 2.589 2.494 2.404 2.362 2.166 1.997 1.849
5 4.926 4.853 4.713 4.452 4.329 4.212 3.993 3.791 3.605 3.433 3.352 3.274 3.127 2.991 2.864 2.745 2.689 2.436 2.220 2.035
6 5.896 5.795 5.601 5.242 5.076 4.917 4.623 4.355 4.111 3.889 3.784 3.685 3.498 3.326 3.167 3.020 2.951 2.643 2.385 2.168
7 6.862 6.728 6.472 6.002 5.786 5.582 5.206 4.868 4.564 4.288 4.160 4.039 3.812 3.605 3.416 3.242 3.161 2.802 2.508 2.263
8 7.823 7.652 7.325 6.733 6.463 6.210 5.747 5.335 4.968 4.639 4.487 4.344 4.078 3.837 3.619 3.421 3.329 2.925 2.598 2.331
9 8.779 8.566 8.162 7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.772 4.607 4.303 4.031 3.786 3.566 3.463 3.019 2.665 2.379
10 9.730 9.471 8.983 8.111 7.722 7.360 6.710 6.145 5.650 5.216 5.019 4.833 4.494 4.192 3.923 3.682 3.571 3.092 2.715 2.414
11 10.677 10.368 9.787 8.760 8.306 7.887 7.139 6.495 5.938 5.453 5.234 5.029 4.656 4.327 4.035 3.776 3.656 3.147 2.752 2.438
12 11.619 11.255 10.575 9.385 8.863 8.384 7.536 6.814 6.194 5.660 5.421 5.197 4.793 4.439 4.127 3.851 3.725 3.190 2.779 2.456
13 12.556 12.134 11.348 9.986 9.394 8.853 7.904 7.103 6.424 5.842 5.583 5.342 4.910 4.533 4.203 3.912 3.780 3.223 2.799 2.469
14 13.489 13.004 12.106 10.563 9.899 9.295 8.244 7.367 6.628 6.002 5.724 5.468 5.008 4.611 4.265 3.962 3.824 3.249 2.814 2.478
15 14.417 13.865 12.849 11.118 10.380 9.712 8.559 7.606 6.811 6.142 5.847 5.575 5.092 4.675 4.315 4.001 3.859 3.268 2.825 2.484

 

 

 

 

 

Exhibit A.8

Present Value of $1

Year 1/2% 1% 2% 4% 5% 6% 8% 10% 12% 14% 15% 16% 18% 20% 22% 24% 25% 30% 35% 40%
1 0.995 0.990 0.980 0.962 0.952 0.943 0.926 0.909 0.893 0.877

0.870

 0.862 0.847 0.833 0.820 0.806 0.800 0.769 0.741 0.714
2 0.990 0.980 0.961 0.925 0.907 0.890 0.857 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.672 0.650 0.640 0.592 0.549 0.510
3 0.985 0.971 0.942 0.889 0.864 0.840 0.794 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.551 0.524 0.512 0.455 0.406 0.364
4 0.980 0.961 0.924 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.451 0.423 0.410 0.350 0.301 0.260
5 0.975 0.951 0.906 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.497 0.476 0.437 0.402 0.370 0.341 0.328 0.269 0.223 0.186
6 0.971 0.942 0.888 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.432 0.410 0.370 0.335 0.303 0.275 0.262 0.207 0.165 0.133
7 0.966 0.933 0.871 0.760 0.711 0.665 0.583 0.513 0.452 0.400 0.376 0.354 0.314 0.279 0.249 0.222 0.210 0.159 0.122 0.095
8 0.961 0.923 0.853 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.327 0.305 0.266 0.233 0.204 0.179 0.168 0.123 0.091 0.068
9 0.956 0.914 0.837 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.284 0.263 0.225 0.194 0.167 0.144 0.134 0.094 0.067 0.048
10 0.951 0.905 0.820 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.247 0.227 0.191 0.162 0.137 0.116 0.107 0.073 0.050 0.035
11 0.947 0.896 0.804 0.650 0.585 0.527 0.429 0.350 0.287 0.237 0.215 0.195 0.162 0.135 0.112 0.094 0.086 0.056 0.037 0.025
12 0.942 0.887 0.788 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.187 0.168 0.137 0.112 0.092 0.076 0.069 0.043 0.027 0.018
13 0.937 0.879 0.773 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.163 0.145 0.116 0.093 0.075 0.061 0.055 0.033 0.020 0.013
14 0.933 0.870 0.758 0.577 0.505 0.442 0.340 0.263 0.205 0.160 0.141 0.125 0.099 0.078 0.062 0.049 0.044 0.025 0.015 0.009
15 0.928 0.861 0.743 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.123 0.108 0.084 0.065 0.051 0.040 0.035 0.020 0.011 0.006
Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company's tax rate is 20 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year). Complete this question by entering your answers in the tabs below. Required A Required B Compute the present value of the tax shield resulting from depreciation. Note: Round PV factor to 3 decimal places. Present value of the tax shield Required A Required B >
Transcribed Image Text:Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company's tax rate is 20 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year). Complete this question by entering your answers in the tabs below. Required A Required B Compute the present value of the tax shield resulting from depreciation. Note: Round PV factor to 3 decimal places. Present value of the tax shield Required A Required B >
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