Spherical Manufacturing recently spent $15 million to purchase some equipment used in themanufacture of disk drives. This equipment has a CCA rate of 45% and Spherical's marginal corporatetax rate is 32%.a. What are the annual CCA deductions associated with this equipment for the first five years?b. What are the annual CCA tax shields for the first five years?c. What is the present value of the first five CCA tax shields if the appropriate discount rate is 12%per year?d. What is the present value of all the CCA tax shields assuming the equiment is never sold and theappropriate discount rate is 12% per year?e. How might your answer to part (d) change if Spherical anticipates that its marginal corporate tax ratewill increase substantially over the next five years?

CCA (Capital Cost Allowance) depreciation method is a method of computing depreciation wherein…

Answered: Spherical Manufacturing recently spent…

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

Section: Chapter Questions

Problem 1PS

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