At what amount should the capital cost allowance (CCA)tax shield be included in the calculation of the net present value of an investment project?
A) The amount of the CCA with no adjustment for taxes.
B) The amount of the CCA multiplied by one minus the tax rate.
C) The amount of the CCA multiplied by the tax rate.
D) Zero, since the amount of CCA is not relevant to the calculation of net present value.

Question

Quizplus · Accepted Answer

The capital cost allowance (CCA) tax shield should be included in the calculation of the net present value (NPV) of an investment project at the amount of the CCA multiplied by the tax rate. This is because the CCA reduces taxable income, which in turn reduces the amount of tax paid by the amount of CCA times the tax rate, providing a tax shield benefit to the project.

At What Amount Should the Capital Cost Allowance (CCA)tax Shield