A Company with a Tax Rate of 32% Is Planning

question 162

Multiple Choice

A company with a tax rate of 32% is planning to acquire a $86 000 asset that has a 30% CCA rate.The company may purchase the asset or lease it. The cost of borrowing is 10%. The prospectivelessor has a 40% 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 lessee is 126% of the value to the lessor
• B) The value to the lessee is 96% of the value to the lessor
• C) The value to the lessor is 105% of the value to the lessee
• D) The value to the lessor is 126% of the value to the lessee

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Definitions:

Societal Implications

The effects or consequences that a specific action, policy, or event has on society as a whole.

Rule 10

A regulation or guideline that can refer to specific procedures or protocols in various organizations, requiring clarification of the context for a precise definition.

Grant Certiorari

A legal term referring to the Supreme Court's decision to hear a case, allowing for judicial review of a lower court's decision.

Supreme Court of the United States

The highest federal court in the United States, consisting of nine justices who interpret the Constitution and adjudicate cases of national significance.