A Company Purchases Equipment to Be Used in Business Operations

question 46

Essay

A company purchases equipment to be used in business operations for $250,000.The equipment has a CCA rate of 25%.You intend to sell the equipment in year 8 for a salvage value of $8,000.At the time of sale, you still anticipate having other assets in the class.Tax rate is 35%.Company uses a 12% rate of return.Determine the present value of the incremental tax shields generated.

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Definitions:

Joint Operations

A business activity in which two or more parties share control and management, as well as the benefits and risks of the operation.

Joint Arrangements

Accounting term for arrangements between two or more parties who undertake an economic activity that is subject to joint control.

Equal Interests

A term usually indicating that all parties involved have the same level of stake or share in an asset, liability, or agreement.

Joint Control

The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.