Rush Corporation plans to acquire production equipment for $600,000
Question # 00288935
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Updated on: 05/20/2016 12:48 AM Due on: 06/19/2016
Rush Corporation plans to acquire production equipment for $600,000 that will be depreciated for tax purposes as follows: year 1, $120,000; year 2, $210,000; and in each of years 3 through 5, $90,000 per year. An 8 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent.
Required
a. Compute the present value of the tax shield resulting from depreciation.
b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($120,000 per year).
Required
a. Compute the present value of the tax shield resulting from depreciation.
b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($120,000 per year).
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Solution: Rush Corporation plans to acquire production equipment for $600,000