What is the value of the depreciation tax shield
Course:- Financial Management
Reference No.:- EM13923860

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You are contemplating the purchase of a new $1,840,000 computer-based dairy cow feeding system. The system will be depreciated straight-line over its ten year life and have no value at the end of its life. you will earn $530,000 before taxes per year from additional milk production. If the tax rate is 25% and the required return to capitol is 10% compute the following-on an after-tax basis.

a) What is the annual after-tax cash flow?

b) What is the value of the depreciation tax shield?

c) Compute the Net Present Value.

d) How much would you be willing to pay at most for this feeding system?

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