A Company with a Tax Rate of 38% Is Planning

question 46

Multiple Choice

A company with a tax rate of 38% is planning to acquire a $1 125 000 asset that has a 30% CCA rate. The company may purchase the asset or lease it. The cost of borrowing is 12%. The prospectivelessor has a 46% tax rate and a 5.5% cost of capital. Which of the following statements is correct about the present value of the tax shield on the CCA to the lessor compared to the present value of the tax shield to the lessee?

• A) The value to the lessor is 143% of the value to the lessee
• B) The value to the lessee is 139% of the value to the lessor
• C) The value to the lessee is 113% of the value to the lessor
• D) The value to the lessor is 129% of the value to the lessor

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Definitions:

Productivity

The efficiency of production of goods or services expressed by some measure, commonly the ratio of output to input.

Leadership Style

The characteristic approach to leading and influencing team members, shaped by behaviors, attitudes, and communication methods.

Contingent

Depending on something else that might or might not happen, often used to describe conditional situations or employment.

Contingency Approach

An approach to management that recognizes that there is no one best way to manage and that an appropriate management style depends on the demands of the situation.