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3 The depreciation charge would be included in the calculation of cost of goods sold. Thus, the recognition of the depreciation charge for income tax purposes in 2007, 2008, and 2009 would be deferred one year. The depreciation tax shield for 2007 and 2008 is $360,000 ($900,000 x .40). The depreciation recognized for income tax purposes in 2010 would be $1,800,000 which consists of the 2009 depreciation charge included in the 2010 cost of goods sold and the 2010 depreciation charge recognized in 2010 when the plant is presumably being used as a warehouse. Thus, the depreciation tax shield in 2010 is $720,000 ($1,800,000 x .40).
4 There is no gain or loss on the sale of the plant; thus, the cash flow is equivalent to the proceeds (see Alternative 2).
Answer B:
The additional factors Kravel Corporation should consider before making a decision regarding the disposition or use of the idle plant and equipment at the Dayton Plant includes the following.
 Kravel should consider the risks involved for each of the alternatives. Alternative 1 is the least risky because it would be completed on January 1, 2007, whereas Alternatives 2 and 3 would involve activities through 2010.
 Kravel should consider the accuracy of the cash flow estimates and discount rates used in the cash flow analysis.
 Kravel should consider the fit between the timing of the cash flows for each alternative and the cash needs of the corporation.
 Kravel should consider the likelihood of an opportunity to resume the production of truck parts at the Dayton Plant. Alternative 1 eliminates that possibility and Alternative 2 precludes it until 2011.