Question
In: Finance
Moore & Moore (MM) is considering the purchase of a new machine for $50,000, installed. MM...
Moore & Moore (MM) is considering the purchase of a new machine for $50,000, installed. MM will use the CCA method to depreciate the machine. This machine is included in CCA class 8 (20%). MM expects to sell the machine at the end of its 4-year operating life for $10,000. If MM’s marginal tax rate is 40%, what will be the present value of the CCA tax shield when it disposes of the machine at the end of Year 4? Assume that the relevant discount rate is 10%.
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Solutions
Expert Solution
Installed
50000
Sell machine
10000 40000
Years OB Rate Dep.
CB
1 40000 0.2 8000
32000
2 32000 0.2 6400
25600
3 25600 0.2 5120
20480
4 20480 0.2 4096
16384
4 th year end Value
16384
marginal tax rate
0.4
After tax
9830.4
10% Discounted
0.9091
Present Value
8936.82
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