Island Tool and Dye Limited is a Prince Edward Island based manufacturing company considering acquiring new machinery worth $25 956. Island Tool and Dye may purchase the equipment from their supplier or lease it from Town and Country Leasing. The machinery's estimated salvage value after 8 years is estimated at $2 600. Island Tool and Dye's tax rate is 35%, before-tax borrowing rate10%, and the CCA rate is 20%. Keeping in mind that Island Tool and Dye is eligible for the federalInvestment Tax Credit (ITC), what is the present value of the company's cost of purchasing theequipment? Round your final answer to the nearest dollar.
A) $15 843
B) $18 115
C) $16 510
D) $17 290

Question

Quizplus · Accepted Answer

The present value of the cost of purchasing the equipment is calculated by considering the initial cost, tax savings from CCA, the salvage value, and the effect of the ITC. The correct calculation results in a present value of $16,510.

Island Tool and Dye Limited Is a Prince Edward Island