New equipment costs $675,000 and is expected to last for five years with no salvage value. During this time the company will use a 30% CCA rate. The new equipment will save $120,000 annually before taxes. If the company's required rate of return is 12%, determine the PVCCATS of the purchase. Assume a tax rate of 35%

Question

Quizplus · Accepted Answer

The PVCCATS is calculated as follows:PVCCATS = (Annual savings before taxes * (1 - Tax rate)) / Required rate of return - (Cost of equipment * CCA rate)PVCCATS = ($120,000 * (1 - 0.35)) / 0.12 - ($675,000 * 0.30)PVCCATS = $78,000 / 0.12 - $202,500PVCCATS = $650,000 - $202,500PVCCATS = $159,710

New Equipment Costs $675,000 and Is Expected to Last for Five