In: Finance
Cost of Capital =k | 12% |
Assuming Half year convention for 1st year | |
Asset value =C | 200,000.00 |
CCA Rate =d=25% | |
Year 1 CCA=200,000*25%/2= | 25,000.00 |
UCC at Year 1 end= UCC1=200,000-25000=175,000 | |
Asset Life =n=20 years | |
Tax rate =T=35% | |
UCC at year 20 end =UCC1*(1-d)^(n-1)=175000*(1-25%)^19 | 739.95 |
Salvage value at year 20 end = | 8,000.00 |
Capital Gain /CCA recapture | 7,260.05 |
Tax on CCA recapture =7260.05*35% | 2,541.02 |
PV of CCA recapture =2541.02/1.12^20= | 263.43 |
Total CCA tax shield w/o considering Salvage | ||
related recapture =(C*d*T)/(k+d)*(1+0.5*k)/(1+k) | ||
=(200,000*25%*35%)/(12%+25%)*(1+0.5*12%)/(1+12%) | ||
=$44763.51 | ||
Less : PV of CCAt recapture = | $ 263.43 | |
Net CCA Tax shield =$44763.51-263.43=$44,500.09 |
Ans is close to option $44,567
So correct option is A . $44,567.