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:

Economic Profits

The financial gain obtained after subtracting both explicit and implicit costs from total revenues.

Perfectly Competitive Industry

An industry in which no single producer can influence the market price of the product because the conditions of perfect competition are met.

Economic Resources

Assets or inputs that contribute to the production of economic goods, including land, labor, capital, and entrepreneurship.

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from total revenue, capturing the true economic value created.