Question

What is the CCA expense or deduction in year 3 of the following project? Capex (investment): $250,000; tax rate: 40%; depreciation rate: 20%; discount rate: 9%.

		A. $32,000
		C. $38,000
		D. $40,000
		B. $36,000

Answer 1

Given about a project,

Initial investment C0 = $250000

Depreciation rate = 20%

In the first year, we can claim only half of the CCA rate/Depreciation rate

So, CCA in 1st year = 10% of 250000 = $25000

So, End UCC = Beg UCC - CCA = 250000 - 25000 = $225000

From 2nd year, deduction would be base on depreciation rate,

So, CCA in 2nd year = 20% of 225000 = $45000

So, End UCC in 2nd year = 225000 - 45000 = $180000

Similarly, in year 3, CCA deduction = 20% of 180000 = $36000

CCA expense or deduction in year 3 is $36000