Question

Larry's bridal company has purchased a manufacturing equipment costing $75,300. The equipment has a three-year useful life with a salvage value of $30,500. CCA will be taken using a rate of 30%. The tax rate is 26.00%, while the discount rate is 7.50%. Assuming the company takes all available CCA every year, what will be the amount of taxes Larry has saved due to CCA in year 2?

A) 4992

B)5117

C)5242

D5367

E)5492

F)5276

Answer 1

Solution

correct answer- 4992 Option A

IN CCA depreciation Depreciation in the first year = 50% of (Book value at beginning of first year *depreciation rate)

=50%*75300*30%

=11295

Therefore book value at the start of the second year= Book value at the beginning of first year-Depreciation in the first year

=75300-11295

=64005

Depreciation in second year=book value at the start of the second year*depreciation rate

=64005*30%

=19201.50

Therefore the tax saving in second year=tax rate*depreciation in the second year

=26%*19201.5

=4992.39

Thus correct answer= 4992