Use the information below to answer the following question(s).Albernie Ltd.purchased a CCA Class 8 (CCA rate of 20%)item of equipment for $90,000.The equipment was the only item in the Class 8 capital cost allowance pool.The equipment is expected to generate savings in the amount of $40,000 per year.The company uses straight-line depreciation, estimates a 3 year useful life with $20,000 salvage value for the new equipment.The tax rate is 35%, and Albernie has a required rate of return of 9.0%.
-What is present value of the salvage value that Albernie Ltd.is expecting from the equipment?
A)$ 15,897
B)$ 20,000
C)$ 15,444
D)$ 11,574
E)$ 14,169

Question

Quizplus · Accepted Answer

The salvage value is $20,000, but in order to determine the present value, we need to discount it back to the present using the required rate of return. Using the formula for present value of a future amount:
PV = FV / (1+r)^n
PV = 20,000 / (1+0.09)^3
PV = $15,444. Therefore, the best choice is C.

Use the Information Below to Answer the Following Question(s)