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Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen
Edition 2ISBN: 978-1111824402Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen
Edition 2ISBN: 978-1111824402 Exercise 23
MACRS, NPV
Lilly Company is planning to buy a set of special tools for its grinding operation. The cost of the tools is $18,000. The tools have a three-year life and qualify for the use of the three-year MACRS. The tax rate is 40 percent; the cost of capital is 12 percent.
Required:
1. Calculate the present value of the tax depreciation shield, assuming that straight-line depreciation with a half-year life is used.
2. Calculate the present value of the tax depreciation shield, assuming that MACRS is used.
3. What is the benefit to the company of using MACRS?
Lilly Company is planning to buy a set of special tools for its grinding operation. The cost of the tools is $18,000. The tools have a three-year life and qualify for the use of the three-year MACRS. The tax rate is 40 percent; the cost of capital is 12 percent.
Required:
1. Calculate the present value of the tax depreciation shield, assuming that straight-line depreciation with a half-year life is used.
2. Calculate the present value of the tax depreciation shield, assuming that MACRS is used.
3. What is the benefit to the company of using MACRS?
Explanation
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1.Calculate the Present value of the tax...
Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen
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