Asked by
Danyelle Solle Dantic
on Dec 08, 2024
Verified
Jasper Manufacturing is starting a new project which will require the acquisition of new fixed assets costing $127,000. The assets will have a 5-year life after which time they will be worthless. The assets belong in a 25 percent CCA class. The assets can be leased for $27,900 a year. The firm can borrow money at 11 percent and has a 34 percent tax rate. What is the amount of the depreciation tax shield in year 3?
A) $7,084
B) $9,486
C) $11,222
D) $12,818
E) $13,265
Depreciation Tax Shield
The reduction in income tax that results from the deduction of depreciation expenses on a company's tax return.
CCA Class
Canadian term for Capital Cost Allowance Class; a classification for tax depreciation of assets for Canadian businesses.
Tax Rate
The rate at which a person or business is charged taxes by the state.
- Identify the function of tax shields within the decision-making process of leasing versus purchasing, particularly concerning depreciation and Capital Cost Allowance (CCA).
Verified Answer
AT
Learning Objectives
- Identify the function of tax shields within the decision-making process of leasing versus purchasing, particularly concerning depreciation and Capital Cost Allowance (CCA).