Calculate the value of the tax shield one and tax shield two

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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) $

Reference no: EM13885054

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