Calculate the Present Value of the Depreciation Tax Shield for an Asset

question 58

Essay

Calculate the present value of the depreciation tax shield for an asset in the 3-year class life costing $100,000. Three-year class percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively for years 1 through 4. The firm has a 35% tax rate and a 10% cost of capital. Compare this present value to that calculated for straight-line depreciation with no salvage value.

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Definitions:

Altered State

A condition of consciousness distinctly different from normal waking consciousness, often brought about by drugs, meditation, hypnosis, or extreme stress.

Executive Function

A set of cognitive processes including attentional control, inhibitory control, working memory, and cognitive flexibility, essential for reasoning, problem-solving, and planning.

REM Sleep

A phase of sleep characterized by rapid eye movement, increased brain activity, and vivid dreams. It is critical for processing emotions and consolidating memories.

Light Sleep

A stage of sleep that is characterized by easy awakeness and is not as deep as REM or deep sleep stages.