A company anticipates a capital cost allowance (CCA)deduction of $30,000 in year 3 of a project.The company's tax rate is 30%,and its discount rate is 12%.What is the approximate present value of the CCA tax shield resulting from this deduction?

Question

Quizplus · Accepted Answer

The CCA tax shield is calculated as the tax rate multiplied by the CCA deduction, which is $30,000 * 30% = $9,000. The present value of this tax shield is then calculated by discounting it back to the present value using the discount rate of 12% for 3 years: $9,000 / (1 + 0.12)^3 ≈ $6,408.

A Company Anticipates a Capital Cost Allowance (CCA)deduction of $30,000