Question

Burton Corp. currently has a fleet of vehicles for product delivery and repair. The vehicles were...

Burton Corp. currently has a fleet of vehicles for product delivery and repair. The vehicles were purchased four years prior for a capital cost of $17.25 mln and are the only assets that the firm has in CCA Class 16 (which has a CCA Rate of 30%). Senior management is currently evaluating the prospect of outsourcing delivery and repair services to an external third party, which would result in the firm selling its existing fleet of vehicles. BC’s marginal tax rate is 25%.   (WACC=8%)


For each of the following hypothetical resale values, determine the value of (if applicable): (i) Capital Gain, (ii) Terminal Loss, (iii) CCA Recapture, (iv) Total Tax Credit or Liability

a. The vehicles’ current undepreciated capital cost
b. $21.75 mln
c. $17.25 mln
d. $12.15 mln
e. $3.75 mln

Homework Answers

Answer #1
DEPRECIATION DURING 4 YEARS
Figures in $ million
Year 1 2 3 4
A Beginning Capital cost $17.25 $12.08 $8.45 $5.92
B Depreciation Rate 30% 30% 30% 30%
C=A*B Depreciation amount $5.18 $3.62 $2.54 $1.78
D=A-C Ending undepreciated capital $12.08 $8.45 $5.92 $4.14
Current undepreciated Capital Cost $4.14
a. Resale Value =$4.14 million
(i)Capital Gain $0
(ii) Terminal Loss $0
(iii)CCA Recapture $0
(iv)Total Tax Credit or Liability $0
b. Resale Value =$21.75 million
(i)Capital Gain $4.50 (21.75-17.25)
(ii) Terminal Loss $0
(iii)CCA Recapture $13.11 (17.25-4.14)
(iv)Total Tax Liability $4.40 (25%*(21.75-4.14)
c. Resale Value =$17.25 million
(i)Capital Gain $0.00
(ii) Terminal Loss $0
(iii)CCA Recapture $13.11 (17.25-4.14)
(iv)Total Tax Liability $3.28 (25%*13.11)
d. Resale Value =$12.15 million
(i)Capital Gain $0.00
(ii) Terminal Loss $0
(iii)CCA Recapture $8.01 (12.15-4.14)
(iv)Total Tax Liability $2.00 (25%*8.01)
e. Resale Value =$3.75 million
(i)Capital Gain $0.00
(ii) Terminal Loss $0.39 (4.14-3.75)
(iii)CCA Recapture $0.00 (12.15-4.14)
(iv)Total Tax Credit $0.10 (25%*0.39)
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT
Active Questions
  • Create a program in java using if statements Suppose the WIFI of a client is not...
    asked 8 minutes ago
  • W Mart, one of major retailers, reported cash flows and earning: Comprehensive income) for the firm...
    asked 20 minutes ago
  • Parker Hi-Fi Systems Parker Hi-Fi Systems, located in Wellesley, Massachusetts, a Boston suburb, assembles and sells...
    asked 20 minutes ago
  • Manufacturing companies strive to maintain production​ consistency, but it is often difficult for outsiders to tell...
    asked 31 minutes ago
  • There is a difference between statistical probability and theoretical probability. The theoretical probability of rolling a...
    asked 38 minutes ago
  • In a small struggling technology company, the employees are aware that processes and structures must change...
    asked 50 minutes ago
  • On June 30, 2018, Blue, Inc. leased a machine from Large Leasing Corporation. The lease agreement...
    asked 1 hour ago
  • You are on a mountain and see three other mountain tops that create a polygonal valley....
    asked 1 hour ago
  • Congressional Ethics: Identify one (1) member of Congress who has been charged with ethics violations in...
    asked 1 hour ago
  • A study had a statistically significant finding that walking 1 mile everyday will reduce the BMI...
    asked 1 hour ago
  • What is meant by electrical equivalent of heat. (define ) What is electrical energy and what...
    asked 1 hour ago
  • A block of mass 1.970  kg is free to slide on a frictionless, horizontal surface. A cord...
    asked 1 hour ago