Montcalm Company is evaluating the purchase of a new machine that costs $435,000, will have a CCA rate of 25%, an estimated useful life of 10 years and a $15,000 terminal disposal price. The company's marginal tax rate is 32%. It is estimated that the machine will increase before tax profits by $85,000 annually. Montcalm requires a 14% after tax rate of return. Based on the above information, calculate the tax shield.

Montcalm Company is evaluating the purchase of a new machine that costs $435,000, will have a CCA rate of 25%, an estimated useful life of 10 years and a $15,000 terminal disposal price. The company's marginal tax rate is 32%. It is estimated that the machine will increase before tax profits by $85,000 annually. Montcalm requires a 14% after tax rate of return. Based on the above information, calculate the tax shield.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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