Spherical Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's marginal corporate tax rate is 29%. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 8% per year? d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 8% per year? e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years?
Spherical Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's marginal corporate tax rate is 29%. a. What are the annual CCA deductions associated with this equipment for the first five years? b. What are the annual CCA tax shields for the first five years? c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 8% per year? d. What is the present value of all the CCA tax shields assuming the equiment is never sold and the appropriate discount rate is 8% per year? e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax rate will increase substantially over the next five years?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 18E
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![Spherical Manufacturing recently spent $15 million to purchase some equipment used in
the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's
marginal corporate tax rate is 29%.
a. What are the annual CCA deductions associated with this equipment for the first
five years?
b. What are the annual CCA tax shields for the first five years?
c. What is the present value of the first five CCA tax shields if the appropriate discount
rate is 8% per year?
d. What is the present value of all the CCA tax shields assuming the equiment is never
sold and the appropriate discount rate is 8% per year?
e. How might your answer to part (d) change if Spherical anticipates that its marginal
corporate tax rate will increase substantially over the next five years?
a. What are the annual CCA deductions associated with this equipment for the first
five years?
The CCA deduction for year 1 is $
(Round to the nearest dollar.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F046071f2-84d0-4881-8444-1fa873cbd77c%2F6cfec67d-1fd1-474e-a7e8-a8b30037741e%2Fnl3qq2_processed.png&w=3840&q=75)
Transcribed Image Text:Spherical Manufacturing recently spent $15 million to purchase some equipment used in
the manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical's
marginal corporate tax rate is 29%.
a. What are the annual CCA deductions associated with this equipment for the first
five years?
b. What are the annual CCA tax shields for the first five years?
c. What is the present value of the first five CCA tax shields if the appropriate discount
rate is 8% per year?
d. What is the present value of all the CCA tax shields assuming the equiment is never
sold and the appropriate discount rate is 8% per year?
e. How might your answer to part (d) change if Spherical anticipates that its marginal
corporate tax rate will increase substantially over the next five years?
a. What are the annual CCA deductions associated with this equipment for the first
five years?
The CCA deduction for year 1 is $
(Round to the nearest dollar.)
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