John's Auto is a successful business that has a substantial profit each year. The auto dealership has purchased an antique car for $11,000. John, the proprietor, is almost certain that it will go up in price, and from the research he has done he believes that he can sell the car for $18,000 in 4 years. Although he plans to sell the car for more than it is worth currently, the government still allows him to claim depreciation at a CCA rate of 30%. Maria, one of his accountants, says John should not bother claim CCA because it won't save him money overall, and it will just mean he will have to pay back all his tax savings from years 1 to 3 at the end of year 4. Another accountant, Jesse, claims that John should still depreciate the vehicle each year because it will save him money overall, even though he will probably have to pay the government a significant amount of tax in year 4. What should John do and why? Support your answer with detailed calculations (hint: develop a very simple income statement/cash flow statement for each scenario). (Tax rate is 40% and MARR is 10% compounded annually).
John's Auto is a successful business that has a substantial profit each year. The auto dealership has purchased an antique car for $11,000. John, the proprietor, is almost certain that it will go up in price, and from the research he has done he believes that he can sell the car for $18,000 in 4 years. Although he plans to sell the car for more than it is worth currently, the government still allows him to claim depreciation at a CCA rate of 30%. Maria, one of his accountants, says John should not bother claim CCA because it won't save him money overall, and it will just mean he will have to pay back all his tax savings from years 1 to 3 at the end of year 4. Another accountant, Jesse, claims that John should still
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