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:

Machine Hours

A measure of the amount of time a machine is operated, used as a basis for allocating manufacturing overhead costs to products.

Cost Accounting Systems

Methods and procedures used by businesses to track, record, and analyze costs associated with their operations.

Manufacturing Operations

Encompasses the processes involved in converting raw materials or components into finished goods.

Process Cost System

A financial approach for allocating expenses to akin goods that are manufactured in bulk in an ongoing manner.