Chapter 7: Net Present Value and Capital Budgeting

Annual Depreciation Tax Shield = Tc (Annual Depreciation Expense) = 0.34 ($1,200,000) = $408,000. Next, apply the annuity formula to calculate the PV of the annual depreciation tax shields. PV(Depreciation Tax Shield) = $408,000 A50.20 = $1,220,170. The last relevant cash flow is the salvage value of the factory. ................
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