1. You purchase equipment for $200,000 and it costs $15,000 to have it delivered and installed. Based on past information, you believe that you can sell the equipment for $20,000 when you are done with it in 7 years. The company's marginal tax rate is 40% and the capital
gain tax rate is 15%. If you use sum-of-years depreciation method and the required return (MARR) on this project is 8%:
a. What is the present value of the CCA tax shield?
b. What is the present value of the tax that you will pay on the capital gain from selling the equipment?
2. A construction company's net income/loss for the first five years of the company's existence is as follows; If the company's marginal tax rate is 40%, what is the income tax for the corporation after carrying forward any losses from the years
a. Year 1: -$20,000
b. Year 2: -$25,000
c. Year 3: $30,000
d. Year 4: $40,000
e. Year 5: $30,000
3. Elaborate three impacts of income tax considerations on the financial decisions of construction firms.