Question

The managers of PonchoParts, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. They expect to sell 250 blocks annually for the next five years. The necessary foundry and machining equipment will cost a total of $800,000 and belongs in a 30% CCA class for tax purposes. The firm expects to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labour and materials cost a total of $500 per engine block, fixed costs are $125,000 per year. Assume a 35% tax rate and a 12% discount rate.

What is the present value of the CCA tax shield?

• $168,007

• $65,031

• $175,329

• $220,125

• $97,540

Answer 1

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