Matty's Place is considering the installation of a new computer system that will cut annual operating costs by $11,001. The system will cost $48,000 to purchase and install. This system will belong in a 40% CCA class. What is the amount of the increase in earnings before interest and taxes in the first year for this project?

Question

Quizplus · Accepted Answer

The annual CCA deduction is $48,000 x 40% = $19,200. The increase in EBIT is $11,001 - $19,200 = -$8,199. However, since this is a cost savings, it is added back to EBIT, resulting in an increase of $1,400.

Matty's Place Is Considering the Installation of a New Computer