Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 6, Problem 18PS
Depreciation and project
- a) What is the
present value of Sudbury’s depreciation tax shields? - b) Suppose that the government allows companies to use double-declining-balance depreciation with the option to switch at any point to straight-line. Now what is the present value of the depreciation tax shields?
- c) What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately?
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Suppose that Sudbury Mechanical Drifters is proposing to invest $10.8 million in a new factory. It can depreciate this investment
straight-line over 10 years. The tax rate is 35%, and the discount rate is 10%.
a. What is the present value of Sudbury's depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.)
Total
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Straight-line Schedule
$ 10.8
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Straight-line, 10-year
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Tax Shields at 35% Tc
PV (Tax Shields) at 10%
b. Suppose that the government allows companies to use double-declining-balance depreciation with the option to switch at any point
to straight-line. Now what is the present value of the depreciation tax shields? (Enter your answers in millions rounded to 1 decimal
place.)
Total
Year 10
Year 9
Year 8
Year 7
Year 6
Year 5
Year 4
Year 3
Year 2
Year 1
Double decline…
Suppose that Sudbury Mechanical Drifters is proposing to
invest $10 million in a new factory. It can depreciate this
investment straight-line over 10 years. The tax rate is 40%,
and the discount rate is 10%. a. What is the present value
of Sudbury's depreciation tax shields? b. What would be the
present value of the tax shield if the government allowed
Sudbury to write-off the factory immediately? Complete
this question by entering your answers in the tabs below.
Required A Required B What is the present value of
Sudbury's depreciation tax shields? Note: Enter your
answers in millions rounded to 1 decimal place.
Depreciation straight-line, 10-year Tax Shields at 40% tax
rate PV (Tax Shields) at 10% Year 1 Year 2 Year 3 Year 4
Year 5
Suppose that Sudbury Mechanical Drifters is proposing to invest $10 million in a new factory. It can depreciate this
investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%.
a. What is the present value of Sudbury's…
Suppose that Sudbury Mechanical Drifters is proposing to invest $20.0 million in a new factory. It can depreciate this investment
straight-line over 10 years. The tax rate is 40%, and the discount rate is 10%.
a. What is the present value of Sudbury's depreciation tax shields?
b. What would be the present value of the tax shield if the government allowed Sudbury to write-off the factory immediately?
Complete this question by entering your answers in the tabs below.
Required A
Required B
What is the present value of Sudbury's depreciation tax shields?
Note: Enter your answers in millions rounded to 1 decimal place.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9 Year 10
Total
Depreciation straight-line, 10-year
Tax Shields at 40% tax rate
PV (Tax Shields) at 10%
Chapter 6 Solutions
Principles of Corporate Finance
Ch. 6 - Cash flows Which of the following should be...Ch. 6 - Cash flows Reliable Electric, a major Ruritanian...Ch. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Real and nominal flows Mr. Art Deco will be paid...Ch. 6 - Real and nominal flows Restate the net cash flows...Ch. 6 - Real and nominal flows Guandong Machinery is...Ch. 6 - Working capital Each of the following statements...Ch. 6 - Prob. 9PSCh. 6 - Project NPV Better Mousetraps research...
Ch. 6 - Project NPV A widget manufacturer currently...Ch. 6 - Project NPV Marsha Jones has bought a used...Ch. 6 - Project NPV United Pigpen is considering a...Ch. 6 - Project NPV Imperial Motors is considering...Ch. 6 - Project NPV and IRR A project requires an initial...Ch. 6 - Taxes and project NPV In the International Mulch...Ch. 6 - Depreciation and project NPV Suppose that Sudbury...Ch. 6 - Depreciation and project NPV Ms. T. Potts, the...Ch. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Equivalent annual cash flow Look at Problem 22...Ch. 6 - Equivalent annual cash flow Deutsche Transport can...Ch. 6 - Prob. 25PSCh. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives....Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Replacement decisions Machine C was purchased five...Ch. 6 - Replacement decisions Hayden Inc. has a number of...Ch. 6 - Replacement decisions. You are operating an old...Ch. 6 - Replacement decisions. A forklift will last for...Ch. 6 - The cost of excess capacity The presidents...Ch. 6 - Effective tax rates One measure of the effective...Ch. 6 - Equivalent annual costs We warned that equivalent...
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