Polycorp is about to lease mining equipment worth $1,000,000.
Polycorp is about to lease mining equipment worth $1,000,000. The corporate tax rate is 20% and the equipment can be depreciated on a diminishing value basis of 25% over 4 years (salvage value is zero). Polycorp’s cost of debt is 8%. Calculate the present value of the tax savings from the depreciation foregone? Assume tax is paid in the year of income. Assume the remaining balance is added to the depreciation for year four.(please provide the answer with working process)