A ﬁrm purchases Class 8 equipment for $1,000,000 (CCA Rate 20%) for a 10 year project. What will be the CCA tax shield in year 3? The tax rate is 35%.

Question

Quizplus · Accepted Answer

In year 3, the CCA rate for Class 8 equipment is 20% x 0.5 (half year rule) = 10%. Therefore, the CCA tax shield in year 3 will be $1,000,000 x 10% = $100,000. The tax shield is the amount of tax saved due to the deduction, which is 35% x $100,000 = $35,000. So, option B) is the correct answer.

A ﬁRm Purchases Class 8 Equipment for $1,000,000 (CCA Rate