Strauss Corporation is making a $88,150 investment in equipment with a 5-year li
ID: 2381086 • Letter: S
Question
Strauss Corporation is making a $88,150 investment in equipment with a 5-year life.The company uses the straight-line method of depreciation and has a tax rate of 40 percent.The company Strauss Corporation is making a $88,150 investment in equipment with a 5-year life.The company uses the straight-line method of depreciation and has a tax rate of 40 percent.The company Exercise 9-11 Strauss Corporation is making a $88,150 investment in equipment with a 5-year life.The company uses the straight-line method of depreciation and has a tax rate of 40 percent.The company's required rate of return is 15 percent. What is the present value of the tax savings related to depreciation of the equipment?Explanation / Answer
depreciation TAX SHIELD each YEAR = [(88150/5) * 0.4]
=7052 FOR 5 YEARS
P.V OF THE tax savings related to depreciation of the equipment = 7052* PVIFA(15%,5)
=7052*3.352155
=23639