Assume you have calculated the present value of the tax shield from CCA for a lessor. If the lessor's cost of capital used in this calculation was reduced, how would the present value of the tax shield from CCA change?
A) It would increase
B) It would decrease
C) It would not be affected
D) Cannot be determined with the information provided

Question

Quizplus · Accepted Answer

The present value of the tax shield from CCA is calculated using the lessor's cost of capital. If the cost of capital is reduced, it means that the lessor is able to raise funds at a lower cost. This in turn would increase the present value of the tax shield from CCA, as the lessor would be able to enjoy higher tax savings for each dollar of CCA claimed. Therefore, the correct answer is A) It would increase.

Assume You Have Calculated the Present Value of the Tax