Maple Syrup Food is considering a six-year expansion project that requires an initial investment of $350,000 for the purchase of a new capital asset with a CCA rate of 20%.The costs to install the asset are $25,000.The projected annual sales revenue and costs are $200,000 and $90,000 per year, respectively.The appropriate discount rate is 10%.The firm's marginal tax rate is 40%.What is the fourth year CCA expense assuming accelerated investment incentive is applicable for CCA in year 1?

Question

Quizplus · Accepted Answer

The correct answer is A. The fourth year CCA expense assuming accelerated investment incentive is applicable for CCA in year 1 is $33,600.The CCA rate for the first year is 50% (20% x 2.5). The CCA expense for the first year is $350,000 x 50% = $175,000. The CCA expense for the second year is $350,000 x 30% = $105,000. The CCA expense for the third year is $350,000 x 15% = $52,500. The CCA expense for the fourth year is $350,000 x 7.5% = $33,600.

Maple Syrup Food Is Considering a Six-Year Expansion Project That