Author Question: Droids-R-Us Inc. (DRU), is considering the installation of a new production line to make service ... (Read 40 times)

elizabeth18 · **on:** Apr 25, 2021

Droids-R-Us Inc. (DRU), is considering the installation of a new production line to make service mechanoids. The cost of the new manufacturing equipment is $2.2 million. The machines are classified as 7-year properties. (MACRS rates are provided in the table, below.) The machines will be purchased at the beginning of 2014. (DRU uses a mid-year placed-in-service convention.)

DRU's engineers estimate that the new assembly line could be ready for operations in early 2014. Annual EBITDA is forecasted to be $1.3M for 2014 and all subsequent years of the project. DRU's marginal tax rate is 35%.

What is the value of the depreciation tax shield in 2015? (Do NOT assume that the equipment is salvaged in 2015.) Round your answers to the nearest dollar.

Year	5-Year	7-Year	10-Year
1	20.00%	14.29%	10.00%
2	32.00%	24.49%	18.00%
3	19.20%	17.49%	14.40%
4	11.52%	12.49%	11.52%
5	11.52%	8.93%	9.22%

◦ $110,033
◦ $188,573
◦ $134,673
◦ $314,380
◦ $538,780

jackie · **Reply #1 on:** Apr 25, 2021

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