Rush Corporation plans to acquire production equipment for $640,000 that will be depreciated for tax purposes as follows: year 1, $128,000; year 2, $218,000; and in each of years 3 through 5, $98,000 per year. An 6 percent discount rate is appropriate for this asset, and the company's tax rate is 40 percent.
| (a) |
Compute the present value of the tax shield resulting from depreciation. (Round present value factor for each year to three decimal places and other computations to nearest whole dollar value.)
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| (b) |
Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($128,000 per year). (Round present value factor for each year to three decimal places and other computations to nearest whole dollar value.)
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