DroidsRUs Inc. (DRU), is considering the installation of a new production line to make service...
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DroidsRUs 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 7year properties. (MACRS rates are provided in the table, below.) The machines will be purchased at the beginning of 2014. (DRU uses a midyear placedinservice 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%
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