A company anticipates a capital cost allowance (CCA)deduction of $20,000 in year 2 of a project.The company's tax rate is 30%,and its discount rate is 12%.What is the approximate present value of the CCA tax shield resulting from this deduction? (Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

Question

Quizplus · Accepted Answer

The CCA tax shield is calculated as the tax rate multiplied by the CCA deduction, which is $20,000 * 30% = $6,000. The present value of this tax shield is then calculated by discounting it back to the present value using the discount rate of 12% for year 2: $6,000 / (1 + 0.12)^2 = $4,783.

A Company Anticipates a Capital Cost Allowance (CCA)deduction of $20,000