A firm is considering investing in a new machine that will cost $600,000 and will be be under asset class 43 with a CCA rate of 30%.If the firm's marginal tax rate is 39%,what is the CCA tax shield in the first year?

Question

Quizplus · Accepted Answer

The CCA tax shield is calculated as follows:
CCA tax shield = CCA rate x Asset cost x Tax rate
CCA tax shield = 30% x $600,000 x 39%
CCA tax shield = $70,200 per year
However, in the first year, only half of the CCA rate can be claimed, so the CCA tax shield in the first year would be:
CCA tax shield = 15% x $600,000 x 39%
CCA tax shield = $35,100
Therefore, the correct answer is B.

A Firm Is Considering Investing in a New Machine That