Ms t potts the treasurer of ideal china has a problem the, Ask an Expert

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Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $530,000. Of this sum, $63,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $63,000 using the five-year MACRS tax depreciation Schedule.

Assume the tax rate is 40% and the opportunity cost of capital is 8%. Calculate the value of the tax shield if the kiln is currently expensed and if it is treated as a capital investment. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92316726

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