Laurentide Resort Corporation is considering a seven-year project that requires an initial investment of $525,000 and generates annual after-tax operating cash flow of $225,000.The asset has a CCA rate of 30% and an expected salvage value of $65,000.The firm's marginal tax rate is 40%.What is the CCA tax savings for year 5 assuming accelerated investment incentive is applicable for CCA in year 1?

Question

Quizplus · Accepted Answer

The CCA tax savings for year 5 is calculated by applying the CCA rate to the undepreciated capital cost (UCC) at the beginning of year 5, then multiplying by the tax rate. The accelerated investment incentive allows for a higher CCA claim in year 1, reducing the UCC faster.

Laurentide Resort Corporation Is Considering a Seven-Year Project That Requires