DogChew Products Needs to Replace Its Rawhide Tanning and Molding

question 7

Multiple Choice

DogChew Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for
$245,000 a year, or it can borrow the money to purchase the equipment at 9%. The firm's tax rate is
39%) The CCA rate is 20% (Class 8) .
What is the present value of the depreciation tax shield?

• A) $26,876
• B) $277,177
• C) $186,000
• D) $84,074
• E) $120,888

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Definitions:

Levy

Imposition of a tax, fee, or fine by a government or regulatory authority.

Consumption

The act of using goods and services to satisfy needs or wants.

Price Elasticity

The measure of how much the quantity demanded of a good responds to a change in the price of that good.

Quantity Demanded

Quantity demanded is the amount of a good or service consumers are willing and able to purchase at a specific price level within a given time period.