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

Understand the concept of tax incidence and factors determining the burden distribution between consumers and producers.

Grasp the elasticity concept and its impact on the tax incidence.

Comprehend the principles behind different tax structures (progressive, regressive, and proportional) and their implications on equity and efficiency.

Interpret how taxes influence market outcomes, including deadweight loss and changes to consumer and producer surplus.

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Definitions:

Catalog Retailer

A business that sells products directly to consumers through catalogs, allowing customers to shop without visiting a physical store.

Directional Array

A configuration of antennas or microphones designed to capture or emit radio or sound waves more effectively in specific directions.

Geographical Structure

An organizational structure where operations are divided based on geographical regions, facilitating focus on local markets or resources.

Local Tastes

Preferences and inclinations specific to people in a certain geographical area, often influencing the products and services offered in that region.