You purchased equipment in 2017 for $120,000 plus it costs $20,000 to have it delivered and installed. You also traded yoour old computer worth $20,000. The old CCA half-year rule still applied. Based on past information, you believe that the equipment will have a salvage value of $19,000 in 6 years. The company's marginal tax rate is 40%. If the asset's CCA rate is 20% and the required return on this project is 10%, what is the present value of the tax shield from CCA less the present value of the tax shield lost from salvage?
You purchased equipment in 2017 for $120,000 plus it costs $20,000 to have it delivered and installed. You also traded yoour old computer worth $20,000. The old CCA half-year rule still applied. Based on past information, you believe that the equipment will have a salvage value of $19,000 in 6 years. The company's marginal tax rate is 40%. If the asset's CCA rate is 20% and the required return on this project is 10%, what is the present value of the tax shield from CCA less the present value of the tax shield lost from salvage?
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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Transcribed Image Text:You purchased equipment in 2017 for $120,000 plus it costs $20,000 to have it delivered and installed. You also
traded yoour old computer worth $20,000. The old CCA half-year rule still applied. Based on past information,
you believe that the equipment will have a salvage value of $19,000 in 6 years. The company's marginal tax rate
is 40%. If the asset's CCA rate is 20% and the required return on this project is 10%, what is the present value
of the tax shield from CCA less the present value of the tax shield lost from salvage?
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