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The company has just ordered a new kiln for $480,000. Of this sum, $58,000 is described by the supplier as an installation cost. The company does not know whether the Internal Revenue Service (IRS) will permit to treat this cost as a tax-deductible first-year expense or as a capital investment.
In the latter case, the company could depreciate the $58,000 using the five-year MACRS tax depreciation schedule. Assume the tax rate is 35% and the opportunity cost of capital is 8%.
Calculate the value of the tax shield 1 and tax shield 2. (Note: Use Tax shield 1 as an expense treatment and tax shield 2 as 5 year MACRS.) (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)
Solve for Tax shield 1 (as an expense treatment) $
Solve for Tax shield 2 (as 5 year MACRS) $
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Truman Industries is considering an expansion. The necessary equipment would be purchased for $10 million, and the expansion would require an additional $1 million investment in net operating working capital. The tax rate is 40%.
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An individual retirement account, or IRA, earns tax-deferred interest and allows the owner to invest up to $5000 each year. Joe and Jill both will make IRA deposits for 30 years (from age 35 to 65) into stock mutual funds yielding 9.4%. Joe deposits ..
You are scheduled to receive a $1,500 cash flow in one year, a $2,000 cash flow in two years, and pay a $1,800 payment in three years. If interest rates are 4 percent per year. What is the combined present value of these cash flows?
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