Answered

Westonci.ca is the premier destination for reliable answers to your questions, brought to you by a community of experts. Explore our Q&A platform to find reliable answers from a wide range of experts in different fields. Get quick and reliable solutions to your questions from a community of experienced experts on our platform.

Your Company is considering a new project that will require $100,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $5,000 using straight-line depreciation. The cost of capital is 14%, and the firm's tax rate is 30%. Estimate the present value of the tax benefits from depreciation.

Sagot :

abiolataiwo2015

Answer:

14865.93

Explanation:

Calculation to Estimate the present value of the tax benefits from depreciation.

First step is to calculate the Annual depreciation expense

Annual depreciation expense = [100000 - 5000]/10

Annual depreciation expense = 9500

Second step is to calculate the Tax benefit

Tax benefit = 9500(.30)

Tax benefit = 2850

Now let calculate the PV of tax benefit

Using financial calculator

PMT = 2850

FV = 0

N = 10

i = 14

PV=?

Hence

PV = 14865.93

Therefore the present value of the tax benefits from depreciation is 14865.93

Thanks for using our service. We're always here to provide accurate and up-to-date answers to all your queries. We hope this was helpful. Please come back whenever you need more information or answers to your queries. Your questions are important to us at Westonci.ca. Visit again for expert answers and reliable information.