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Grove Media plans to acquire production equipment for $827,500 that will be depreciated for tax...

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Accounting

Grove Media plans to acquire production equipment for $827,500 that will be depreciated for tax purposes as follows: year 1, $325,500; year 2, $185,500; and in each of years 3 through 5, $105,500 per year. A 10 percent discount rate is appropriate for this asset, and the companys tax rate is 20 percent. Use Exhibit A.8 and Exhibit A.9.

Required:

Compute the present value of the tax shield resulting from depreciation.

Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($165,500 per year).

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