A Company with a Tax Rate of 31% Is Planning

question 106

Multiple Choice

A company with a tax rate of 31% is planning to acquire a $225 950 asset that has a 30% CCA rate.The company may purchase the asset or lease it. The cost of borrowing is 11%. The prospectivelessor has a 46% tax rate and a 6.3% 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 145% of the value to the lessor
• B) The value to the lessor is 155% of the value to the lessee
• C) The value to the lessor is 175% of the value to the lessee
• D) The value to the lessee is 165% of the value to the lessor