If the lease payments of the $800,000 asset were $210,000, first payment occurring at the beginning of the first year when the lease is signed, and tax rate is 40%.What would the CCA tax shields be for Years 0 and 4, assuming these tax shields start in Year 0 and end in Year 4? Remember: CCA = 30%.

Question

Quizplus · Accepted Answer

The CCA tax shield for Year 0 is calculated as 30% of the asset value ($800,000), which is $240,000, and then multiplied by the tax rate (40%), resulting in $96,000. However, since the lease payment is $210,000, the CCA tax shield is limited to $48,000 for Year 0. For Year 4, the CCA tax shield is calculated based on the remaining undepreciated capital cost, resulting in $27,989.

If the Lease Payments of the $800,000 Asset Were $210,000