A Firm Invests $10 Million in a New Stamping Machine

question 92

Multiple Choice

A firm invests $10 million in a new stamping machine.It depreciates it straight line for tax purposes over 5 years.The tax rate is 30%,inflation is 4% a year,and the discount rate is 8%.What is the PV of the depreciation tax shield?

• A) $600,000.
• B) $2,395,626.
• C) $2,579,497.
• D) $3,000,000.

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Definitions:

Fair Market Value

The price at which property would exchange hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell.

Covered Peril

Risks or events that are specifically included as covered within an insurance policy, providing protection against losses from those events.

Coinsurance Clause

A provision in certain insurance policies requiring the policyholder to bear a specified percentage of the costs of covered services.

Property Insurance

Insurance coverage that provides protection against most risks to property, such as fire, theft, and some types of weather damage.