NPV with Income Taxes: Straight-Line versus Accelerated DepreciationCarl William, Inc. is a conservatively managed boat company whose motto is, "The old ways are the good ways." Management has always used straight-line depreciation for tax and external reporting purposes. Although they arereluctant to change, they are aware of the impact of taxes on a project's profitability.RequiredFor a typical $180,000 investment in equipment with a five-year life and no salvage value, determine the present value of the advantage resulting from the use of double-declining balance depreciation as opposed to straight-linedepreciation. Assume an income tax rate of 21% and a discount rate of 20%. Also assume that there will be a switch from double-declining balance to straight-line depreciation in the fourth year.Note: Round your answers below to the nearest whole dollar.Present value of double-declining balance tax shieldxPresent value of straight-line tax shieldxAdvantage of double-declining balance depreciation $

Double decline balance method Depreciation rate = 1/useful life *100 *2 = 1/ 5 year *100*2 = 40%year…

Answered: NPV with Income Taxes: Straight-Line…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 6P

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