Question
Compute the PV of the CCA Tax Shield given the following: Purchase Price of New Equipment...
Compute the PV of the CCA Tax Shield given the following:
Purchase Price of New
Equipment = $60,000
CCA Rate for Equipment = 30%
Salvage Value of Equipment Received in 5 Years = $18,000 (not
Present Value)
Required Rate of Return = 7%
Corporate Tax Rate = 30%
Homework Answers
Answer #1
- Formula for Present Value of CCA tax shields:
where, C = Cost of Capital = $60,000
T_c = Corporate Tax rate = 30%
d = CCA rate = 30%
r = Discount rate = 7%
S = salvage Value = $18000
n no of years of projects = 5
PV CCA Tax Shield = 14117.2013 - 3121.7233
PV CCA Tax Shield = $ 10995.48
So, the the PV of the CCA Tax Shield is $10995.48
If you need any clarification, you can ask in comments.
If you like my answer, then please up-vote as it will be motivating
Not the answer you're looking for?
Similar Questions
A company is considering a project which will require the purchase of $805,000 in new equipment....
A
company is considering a project which will require the purchase of
$805,000 in new equipment. The company expects to sell the
equipment at the end of the project for 25% of its original cost,
but some assets will remain in the CCA class. Annual sales from
this project are estimated at $292,000. Initial net working capital
equal to 36.50% of sales will be required. All of the net working
capital will be recovered at the end of the project....
Advantica Restaurant Group, Inc. requires the purchase of $655,000 in new equipment. The company expects to...
Advantica Restaurant Group, Inc. requires the purchase of
$655,000 in new equipment. The company expects to sell the
equipment at the end of the project for 25% of its original cost,
but some assets will remain in the CCA class. Annual sales from
this project are estimated at $232,000. Initial net working capital
equal to 29.00% of sales will be required. All of the net working
capital will be recovered at the end of the project. The firm
requires a...
Your company is considering a project which will require the purchase of $685,000 in new equipment....
Your company is considering a project which will require the
purchase of $685,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $244,000. Initial net working
capital equal to 30.50% of sales will be required. All of the net
working capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $785,000 in new equipment....
Your company is considering a project which will require the
purchase of $785,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $284,000. Initial net working
capital equal to 35.50% of sales will be required. All of the net
working capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $645,000 in new equipment....
Your company is considering a project which will require the
purchase of $645,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $228,000. Initial net working
capital equal to 28.50% of sales will be required. All of the net
working capital will be recovered at the end of the project....
A company is considering a project which will require the purchase of $705,000 in new equipment....
A
company is considering a project which will require the purchase of
$705,000 in new equipment. The company expects to sell the
equipment at the end of the project for 25% of its original cost,
but some assets will remain in the CCA class. Annual sales from
this project are estimated at $252,000. Initial net working capital
equal to 31.50% of sales will be required. All of the net working
capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $815,000 in new equipment....
Your company is considering a project which will require the
purchase of $815,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $296,000. Initial net working
capital equal to 37.00% of sales will be required. All of the net
working capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $745,000 in new equipment....
Your company is considering a project which will require the
purchase of $745,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $268,000. Initial net working
capital equal to 33.50% of sales will be required. All of the net
working capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $745,000 in new equipment....
Your company is considering a project which will require the
purchase of $745,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $268,000. Initial net working
capital equal to 33.50% of sales will be required. All of the net
working capital will be recovered at the end of the project....
Your company is considering a project which will require the purchase of $675,000 in new equipment....
Your company is considering a project which will require the
purchase of $675,000 in new equipment. The company expects to sell
the equipment at the end of the project for 25% of its original
cost, but some assets will remain in the CCA class. Annual sales
from this project are estimated at $240,000. Initial net working
capital equal to 30.00% of sales will be required. All of the net
working capital will be recovered at the end of the project....
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 45 seconds ago
asked 9 minutes ago
asked 10 minutes ago
asked 21 minutes ago
asked 31 minutes ago
asked 38 minutes ago
asked 43 minutes ago
asked 46 minutes ago
asked 53 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago