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markov manufacturing recently spent $18.5 million to purchase some quitpment used in the manufacture of dism drives. the firm expects thet this equipment will have

Markov Manufacturing recently spent $18.5 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 21% The company plans to use straight-line depreciation a. What is the annual depreciation expense associated with this equipment? 31 b. What is the annual depreciation tax shield? c. Rather than straight-line depreciation, suppose Markov will use the MACRS depreciation method for the five-year life of the property Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule d. If Markov has a choice between straight-line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which schedule should it choose? Why? e. How might your answer to part (d) change if Markov anticipates that its marginal corporate tax rate will increase substantially over the next five years? 1. Under the TCJA of 2017 Markov has the option to take 100% "Bonus" depreciation in the year in which the equipment is put into use. This means that in that year, Markov would take the full depreciation expense equivalent to the cost of buying the equipment. Rather than straight-line depreciation, suppose Markov will obe use the bonus depreciation method Calculate the depreciation tax shield each year for this equipment with bonus depreciation 9. I Markov has a choice between straight-line, MACRS and bonus depreciation schedules, and its marginal corporate tax rate is expected to remain constant which schedule should it choose? Why? V a. What is the annual depreciation expense associated with this equipment? The annual depreciation expense is smilion (Round to three decimal places) b. What is the annual depreciation tax shield? The annual depreciation tax shield is $ milion (Round to three decimal places) c. Rather than straight-line depreciation suppose Markov will use the MACRS depreciation method for the five-year life of the property Calculate the depreciation tax shield each year for this equipment under this accelerated depreciation schedule The depreciation tax shield for year 1 is 5 million (Round to three decimal places) The depreciation tax shiold for year 2 is 5 milion (Round to three decimal places.) The depreciation tax shield for year 3 is [ million (Round to three decimal places) The depreciation tax shield for year 4 is 5 million (Round to three decimal places) The depreciation tax shield for year 5 is 5 million (Round to three decimal places) The depreciation tax shield for year 6 is million (Round to three decimal places) d. 1 Markov has a choice between straight line and MACRS depreciation schedules, and its marginal corporate tax rate is expected to remain constant, which schedule should in choose? Why? (Select the best choice below) O A. The straight-line depreciation is recommended only for assets that last more than 5 years. OB. With MACRS, the firm receives the depreciation tax shields sooner Thus, MACRS depreciation leads to a higher NPV of Markov's FCF OC. With either method, the total depreciation tax shield is the same Therefore, it does not matter which method is used OD. With straight-line depreciation, the firm's depreciation expenses are lower initially, leading to higher earnings. Thus, straight-line depreciation leads to a 1. Under the TCJA of 2017, Markov has the option to take 100% Bonus" depreciation in the year in which the equipment is put into use. This means that in that year, Markov would take the full depreciation expense equivalent to the cost of buying the equipment. Rather than straight-line depreciation, suppose Markov will use the bonus depreciation method Calculate the depreciation tax shield each year for this equipment with bonus depreciation. The depreciation tax shield for year is million (Round to three decimal places.) The depreciation tax shield for years 2-6 is $ milion (Round to three decimal places.) g. If Markov has a choice between straight-line, MACRS and bonus depreciation schedules, and its marginal corporate tax rate is expected to remain constant which schedule should it choose? Why? (Select the best choice below) ni OA. In all cases, its total depreciation tax shield is the same. But with bonus depreciation, it receives the entire depreciation tax shield in year 2-thus bonus depreciation leads to a higher NPV of Markov's FCF OB. In all cases, its total depreciation tax shield is the same. But with bonus depreciation, it receives the entire depreciation tax shield in year -- thus, bonus depreciation leads to a higher NPV of Markov's FCF doc. In all catos, its total depreciation tax shield in the same. But with bonus depreciation, it receives the entire depreciation tax shield in year 1--thus bonus depreciation leads to a higher NPV of Markov's FCE OD. In all cases, its total depreciation tax shield is the same. But with bonus depreciation, it receives the entire depreciation tax shield in year 3thus, bonus depreciation leads to a higher NPV of Markov's FCF h. How might your answer to part () change il Markov anticipates that its marginal corporate tax rate will increase substantially over the next five years? (Select from the drop-down menus) As in the case of MACRS if the tax rate will increase substantially, then Markov may be better off claiming depreciation expenses in because the tax benefit at that time will be greater CI years

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