Calculation of Present Value of CCA Tax Shield and Depreciation Tax Shield of a company
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Question
The managers of Magma International, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. Certain values are given. Calculate following things.
1) Depreciation tax shield in the third year for this project (Nissim, 2002).
CCA at 30% = Machinery Cost*30%
Depreciation tax shield = Machinery cost- CCA
|
Machinery cost |
CCA @30% |
Depreciated Tax shield |
|
800000 |
||
|
560000 |
||
|
392000 |
2) Present value of CCA tax shield
|
Machinery cost |
CCA @30% |
Depreciated Tax shield |
Discounting Factor |
Present value of CCA tax shield |
|
800000 |
||||
|
560000 |
||||
|
392000 |
||||
|
274400 |
||||
|
192080 |
Discounted Value @ 12%
Summary
This question belongs to accounting and discusses about calculation of depreciation tax shield and present value of CCA tax shield of a company.
Total word count: 150
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