What is the value of the depreciation tax shield

Assignment Help Financial Management
Reference no: EM13923860

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?

Reference no: EM13923860

Questions Cloud

Cost of common equity-what would be the cost of new equity : Cost of Common Equity with Flotation Ballack Co.’s common stock currently sells for $35.75 per share. The growth rate is a constant 11.2%, and the company has an expected dividend yield of 2%. The expected long-run dividend payout ratio is 30%, and t..
Decides to undertake capital expansion financed by new debt : A firm with a normalized pretax income of $40 million, 25% tax rate, and a Total Debt/Total Capital ratio of 30%, decides to undertake a capital expansion financed by new debt. How would your answer change if the debt was unsecured? Specifically, wha..
Differences between the treatment and punishment concepts : when addressing juvenile delinquency - treatment and punishment. These two concepts have driven a cycle of changes in the juvenile justice system over the years. Your task is to support your premise that your state or city should either implement ..
Avril company makes collections : Avril Company makes collections on sales according to the following schedule:
What is the value of the depreciation tax shield : 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..
Theoretical foundation for team dynamics : Which discipline has provided organizational behavior with much of its theoretical foundation for team dynamics, organizational power, and organizational socialization?
Need to implement comprehensive electronic health records : The article exposes the need to implement comprehensive electronic health records (EHR) in long term care facilities. American population is aging, as a result posing a new set of need in long term health care.
What is the expected dividend per share : DPS Calculation Warr Corporation just paid a dividend of $1.50 a share (that is, D0 = $1.50). The dividend is expected to grow 7% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for each of the ne..
Competing for limited funding : that is not being effectively spent. State legislatures want to ensure they are getting the most for their limited dollars. The legislature has requested you to present an overview of an effective juvenile justice alternative sentencing program th..

Reviews

Write a Review

 

Financial Management Questions & Answers

  Dividend is expected to grow at an annual rate

Suppose Company paid a dividend of $5.00 per share last year. The dividend is expected to grow at an annual rate of 25% for the next two years and at a constant annual rate of 6% thereafter. Assume a discount rate of 14%. Estimate the current value p..

  What is the dividend yield for each of these three stocks

You will analyze three different stocks, all of which have a required return of 20% and a most recent dividend of $3.50 per share. Stocks A, B, and C are expected to maintain constant growth rates in dividends for the foreseeable future of 12%, 0%, a..

  Market expected return

A stock has an expected return of 15 percent, its beta is 1.55, and the risk-free rate is 6.5 percent. What must the expected return on the market be?

  What is the yield to maturity-treasury strips

A Treasury STRIPS is quoted at 61.159 and has 11 years until maturity. What is the yield to maturity? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

  Invest in government securities-buy and sell federal funds

Banks and other depository institutions make loans, invest in government securities, buy and sell federal funds, and accept deposits with a wide spectrum of maturities and with many payable on demand. Briefly discuss the risks facing these institutio..

  What is the nominal rate of return on these bonds

The outstanding bonds of Roy Thomas inc provide a real rate of return of 3.5%.the current rate of inflation is 2.1 %. What is the nominal rate of return on these bonds?

  What is the modified internal rate of return for the project

A company has an opportunity to invest in a project that is expected to result in after-tax cash flows of $18,000 the first year, $20,000 the second year, $23,000 the third year, -$8,000 the fourth year, $30,000 the fifth year, $36,000 the sixth year..

  What is the component cost of debt

The Kenny Electric Company's non callable bonds were issued several years ago and now have 20 years to maturity. These bonds have a 9.25% annual coupon, paid semi annually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax ..

  Equipment will lead to cash flows

Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $819,822, $863,275, $937,250, $1,020,110, $1,212,960, and $1,225,000 over the next six years. If the appropriate disco..

  Risk-averse but can invest in only one of three securities

Suppose your client is risk-averse but can invest in only one of the three securities, A, B, or C, in an uncertain world characterized as follows. Next year the economy will be in an expansion, normal, or recession state with probabilities 0.43, 0.31..

  Considering buying security that makes annual payments

You are considering buying a security that makes annual payments (to you) that grow by 1% per year forever, with the first payment made one year from today and in the amount of $2. Your required return is 6% per year for this security. How much shoul..

  Capitalized and disclosed on firms balance sheet

If a lease term is more than 80% of the asset's life and the leased property is transferred from the lessor to leasee, then the lease must be capitalized and disclosed on a firm's balance sheet.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd