Suppose a machine that costs $80,000 has a useful life of ten years.Also suppose that capital cost allowance (CCA)deduction on the machine is $8,000 in year 4.The tax rate is 40%.What would be the tax savings from the CCA tax shield in year 4?
A) $4,800 outflow.
B) $3,200 outflow.
C) $3,200 inflow.
D) $4,800 inflow.

Question

Quizplus · Accepted Answer

The CCA tax shield is calculated as follows:

CCA tax shield = CCA deduction x tax rate

= $8,000 x 0.4

= $3,200

Therefore, the tax savings from the CCA tax shield in year 4 is $3,200 inflow.

Suppose a Machine That Costs $80,000 Has a Useful Life