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The Rumpel Felt Company purchased a felt press last year at a cost of $15,000....

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Accounting

The Rumpel Felt Company purchased a felt press last year at a cost of $15,000. The division manager reports that for $13,000 (including installation), a new felt press can be bought. Both machines are in Class 43 with a 30% depreciation rate. The old machine's current market value is $12,000. The new press will be used for two years and then sold for $3,500. If the old press is not replaced, then it could be sold for $3,000 in two years. What is the present value of incremental tax shields in the terminal year? The tax rate is 40% and Rumpel's cost of capital is 10%. Please take into account half-year rule for depreciation in the first year.

a) -1, 143

b) 236

c) 600

d) 29

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