Use the Information Below to Answer the Following Question(s)

question 121

Multiple Choice

Use the information below to answer the following question(s) .Albernie Ltd.purchased a CCA Class 8 (CCA rate of 20%) item of equipment for $90,000.The equipment was the only item in the Class 8 capital cost allowance pool.The equipment is expected to generate savings in the amount of $40,000 per year.The company uses straight-line depreciation, estimates a 3 year useful life with $20,000 salvage value for the new equipment.The tax rate is 35%, and Albernie has a required rate of return of 9.0%.
-What is present value of the tax shield that Albernie Ltd.can expect from the equipment?

• A)$ 18,124
• B)$ 17,099
• C)$ 12,816
• D)$ 7,667
• E)$ 10,222

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Definitions:

Real Wage

The purchasing power of a worker's earnings, adjusted for inflation, reflecting the true value of goods and services that can be bought.

Inflation

How quickly the average cost of products and services climbs, reducing buying power as time progresses.

Expected Inflation

The rate at which the general level of prices for goods and services is anticipated to rise over a specific period.

Nominal Rate

The stated or face interest rate on a loan or financial product, not adjusted for inflation, reflecting the actual rate charged by lenders to borrowers.