DogChew Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 9%. The firm's tax rate is 39%. The CCA rate is 20% (Class 8).

Assume that the original information is true, except that the firm uses the straight-line method to depreciate the equipment to zero over its five-year life. What is the annual depreciation tax shield?

Question

DogChew Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 9%. The firm's tax rate is 39%. The CCA rate is 20% (Class 8).

Assume that the original information is true, except that the firm uses the straight-line method to depreciate the equipment to zero over its five-year life. What is the annual depreciation tax shield?

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The Answer of DogChew Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 9%. The firm's tax rate is 39%. The CCA rate is 20% (Class 8).

Assume that the original information is true, except that the firm uses the straight-line method to depreciate the equipment to zero over its five-year life. What is the annual depreciation tax shield?

DogChew Products Needs to Replace Its Rawhide Tanning and Molding