An asset has an installed cost of $1 million, a life of 10 years, a CCA rate of 30%, and a salvage value of $30,000. What is the relevant present value of CCA tax shields from the lessee's point of view, if the lessee's marginal tax rate is 40% and borrowing cost is 12%?
Answer:
Given:
Initial Cost of Asset (C) = $1000000
CCA rate (d) = 30%
Corporate tax rate (Tc) = 40%
Discount rate (k) = 12%
Salvage value (Sn) = $30,000
Life of project (n) = 10 years
Then:
Present Value of CCA tax shields is given by following formula:
= (1000000* 30%*40% / (12% + 30%) *(1 + 12%/2) / (1 + 12%)) - ((30000 * 30% * 40%)/ (12% + 30%) * 1/(1+12%)10)
= $267,648.39
Present Value of CCA tax shields = $267,648.39
An asset has an installed cost of $1 million, a life of 10 years, a CCA...
An asset has an installed cost of $1 million, a life of 10 years, a CCA rate of 30%, and a salvage value of $30,000. What is the relevant present value of CCA tax shields from the lessee's point of view, if the lessee's marginal tax rate is 40% and borrowing cost is 12%? $316,576 $311,748 $267,648 $306,919 $235,007
An asset has an installed cost of $1 million, a life of 10 years, a CCA rate of 30%, and a salvage value of $30,000. What is the relevant present value of CCA tax shields from the lessee's point of view, if the lessee's marginal tax rate is 40% and borrowing cost is 12%? $311,748 $267,648 $235,007 $306,919 $316,576
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