125. Swap has 31 December as its accounting year end. On 1 January 20X5 a new machine costing $2,000,000 is purchased. The company expects to sell the machine on 31 December 20X6 for $350,000.
The rate of corporation tax for the company is 30%. Tax-allowable depreciation is obtained at 25% on the reducing balance basis, and a balancing allowance is available on disposal of the asset. The company makes sufficient profits to obtain relief for tax-allowable depreciation as soon as they arise. If the company’s cost of capital is 15% per annum,
What is the present value of the tax savings from the tax-allowable depreciation at 1 January 20X5 (to the nearest thousand dollars)?