A fixed asset costing $1,000,000 is a Class 1 asset with a CCA rate of 4%. Using a 10% cost of capital and a 32% tax rate, the present value of the CCA tax shield is $87,273.

Question

Quizplus · Accepted Answer

The calculation for the present value of the CCA tax shield is: 
CCA tax shield = (CCA rate * asset cost) * (1 - tax rate)
CCA tax shield = (0.04 * $1,000,000) * (1 - 0.32) = $27,200
Present value of CCA tax shield = $27,200 / 0.1 = $272,000
Therefore, the statement is false.

A Fixed Asset Costing $1,000,000 Is a Class 1 Asset