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Problem 6-18 Depreciation and project NPV Suppose that Sudbury Mechanical Drifters is proposing to invest $10.2 million in a new factory. It can depreciate this investment straight-line over 10 years. The tax rate is 40%, and the discount rate is 10% a. What is the present value of Sudbury's depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Straight-line Schedule Straight-line, 10-year Tax Shields at 40% TC PV (Tax Shields) at 10% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total $ 1.00 $ 1.01 s 1.0 $ 1.00 $ 1.00 s 1.07 $ 1.01 1.00 $ 1.0 s 1.01 $ 1021 $ 0.4 $ 0.4 s 0.4 $ 0.41 $ 0.4 S 0.47 $ 0.47 $ 0.41 $ 0.4 $ 04 $ 4.1 $ 0.4 $ 0.3 $ 0.3 $ 0.3 0.3 02 $ 0.2 $ 0.2 $ 0.2 $ 02 s 2.5 us b. Suppose that the government allows companies to use double-declining-balance depreciation with the option to switch at any point to straight-line. Now what is the present value of the depreciation tax shields? (Enter your answers in millions rounded to 1 decimal place.) Year 6 Year 7 Total Year 8 Year 4 Year 3 Year 10 Year 9 Year 5 Year 1 Year 2 Double decline Schedule 8.2 $ 1.6 S $ 102 s $ 2.00 $ $ 0.8 $ $ 0.7 $ Start of Year Book Value Depreciation Tax Shields at 40% Tc PV (Tax Shields) at 10% 6.6 $ 1.3 $ 0.6 $ 0.50 $ 5.3 $ 1.1 S 0.4 S 0.3 $ 4.27 s 0.85 0.3 $ 02 $ 3.4 $ 0.7 $ 0.3 $ 0.2 $ 2.7 $ 0.5 $ 0.3 $ 0.2 $ 1.5 $ 0.3 $ 0.1 $ 2.2 $ 0.4 $ 0.2 $ 0.1 $ 12 $ 452 0.21 $ 9.2 0.1 $ 3.8 0.00 $ 3.0 0.71 $ 0.65 $ 0.0 $

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