A Machine Is Purchased for $500,000 and Is Used Through

question 49

Multiple Choice

A machine is purchased for $500,000 and is used through the end of Year 2.The machine falls under asset class 43 with a capital cost allowance (CCA) rate of 30%.At the end of Year 2,the machine is sold for $75,000.What is the present value of the lost CCA tax shields if the firm's marginal tax rate is 40% and its cost of capital is 5%?

• A)$37,050
• B)$15,180
• C)$37,950
• D)$23,324
• E)$25,714

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Definitions:

Paleozoic Sandstone

A sedimentary rock formed during the Paleozoic era, characterized by grains of sand consolidated with some form of cement.

Precambrian Granite

A type of ancient granite rock that formed during the Precambrian era, over 541 million years ago.

Erosion Surface

A land surface shaped and leveled by the long-term action of erosion, removing geological features.

Half Life

The time required for half of a radioactive substance to decay by radioactive processes.