A Company with a Tax Rate of 33% Is Planning

question 158

Multiple Choice

A company with a tax rate of 33% is planning to acquire a $75 000 asset that has a 20% CCA rate.The company may purchase the asset or lease it. The cost of borrowing is 12%. The prospectivelessor has a 45% tax rate and a 6.5% 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 the same as the value to the lessee
• B) The value to the lessor is 145% of the value to the lessee
• C) The value to the lessor is 125% of the value to the lessee
• D) The value to the lessor is 45% of the value to the lessee

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