A machine is purchased for $500,000 and is used through the end of Year 2. The machine falls under asset Class 43 with a capital cost allowance (CCA) rate of 30%. At the end of Year 2, the machine is sold for $75,000. What is the present value of the lost CCA tax shields if the firm's marginal tax rate is 40% and its cost of capital is 5%? OA. $37,050 OB. $25,714 OC. $15,180 D. $23,324 OE. $37,950

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A machine is purchased for $500,000 and is used through the end of Year 2. The machine falls under asset
class 43 with a capital cost allowance (CCA) rate of 30%. At the end of Year 2, the machine is sold for
$75,000. What is the present value of the lost CCA tax shields if the firm's marginal tax rate is 40% and its
cost of capital is 5%?
OA. $37,050
OB. $25,714
C. $15,180
D. $23,324
OE. $37,950
Transcribed Image Text:A machine is purchased for $500,000 and is used through the end of Year 2. The machine falls under asset class 43 with a capital cost allowance (CCA) rate of 30%. At the end of Year 2, the machine is sold for $75,000. What is the present value of the lost CCA tax shields if the firm's marginal tax rate is 40% and its cost of capital is 5%? OA. $37,050 OB. $25,714 C. $15,180 D. $23,324 OE. $37,950
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