A piece of equipment, acquired in Year 1, belongs to Class 7 with a maximum CCA rate of 15%. The income tax rate is 40%. The tax savings (before discounting) from the CCA tax shield were $2,830.50 for Year 3. The after-tax cost of capital is 10%.
- What was the present value of the tax savings from the CCA tax shield in year 3 to the nearest dollar?
A) $1,132.
B) $1,698.
C) $2,127.
D) $2,831.

Question

Quizplus · Accepted Answer

The present value of the tax savings from the CCA tax shield in year 3 is $2,127. This is calculated as follows:PV = $2,830.50 / (1 + 0.10)^3 = $2,127.

A Piece of Equipment, Acquired in Year 1, Belongs to Class