The tax benefits resulting from this depreciation

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Unformatted text preview: or $4,000, is ignored. The tax benefits resulting from this depreciation would make the lease alternative even more attractive. Clearly, the analysis would become both more precise and more complex if we chose to look beyond the 5-year time horizon. CHAPTER 16 TABLE 16.2 679 After-Tax Cash Outflows Associated with Purchasing for Roberts Company Interesta (4) Total deductions [(2) (3) (4)] (5) Tax shields [(0.40 (5)] (6) After-tax cash outflows [(1) (2) (6)] (7) $2,160 $ 8,460 $3,384 $4,286 7,680 1,799 10,979 4,392 3,278 4,560 1,406 7,466 2,986 4,684 2,880 977 5,357 2,143 5,527 2,880 510 4,890 1,956 5,714 End of year Loan payments (1) Maintenance costs (2) Depreciation (3) 1 $6,170 $1,500 $4,800 2 6,170 1,500 3 6,170 1,500 4 6,170 1,500 5 6,170 1,500 aFrom Hybrid and Derivative Securities Table 16.1, column 3. Table 16.2 presents the calculations required to determine the cash outflows6 associated with borrowing to purchase the new machine. Column 7 of the table presents the after-tax cash outflows associated with the purchase alternative. A few points should be clarified...
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