DogChew Products Needs to Replace Its Rawhide Tanning and Molding

question 141

Multiple Choice

DogChew Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 9%. The firm's tax rate is 39%. The CCA rate is 20% (Class 8) .

What is the present value of the depreciation tax shield?

• A) $26,876
• B) $277,177
• C) $186,000
• D) $84,074
• E) $120,888

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Definitions:

Displacement

in psychology, is a defense mechanism where a person redirects a negative emotion from its original source to a less threatening recipient.

Defense Mechanism

A psychological strategy unconsciously used by individuals to protect themselves from anxiety or to avoid facing uncomfortable truths.

Projection

A defense mechanism where individuals attribute their own unacceptable thoughts, feelings, or motives to another person.

Life Instincts

In psychoanalysis, these are the drives or instincts that are directed towards preservation and enhancement of life, including basic needs such as hunger and sex.