Allan Ltd Is Considering Purchasing a New Asset

question 70

Essay

Allan Ltd. is considering purchasing a new asset. It has a cost of $435,000, an expected 4 year life and a salvage value of $150,000. The equipment would qualify as a class 10 (30% CCA) asset and Allan has a required rate of return of 13% and an effective tax rate of 36%.
Required:
Assume that this asset is the only asset in the pool. Assuming the asset is disposed of at its estimated salvage value, what is the tax effect on the disposition of the asset? Assume the asset will be disposed of on day 1 of year 5 so the asset is eligible for CCA claims in year 4.

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Definitions:

Valued Policy

A type of insurance policy where the value of the insured item is agreed upon at the time the policy is issued, and this amount is paid out in the event of a total loss.

Open Policy

An insurance policy that does not name the specific risks covered, but instead provides coverage for all risks, except those explicitly excluded.

Property Insurance

Coverage that provides financial reimbursement to the owner or renter of a structure and its contents in the event of damage or theft.

Intangible Property

Assets that cannot be physically touched or held, such as intellectual property, goodwill, and copyrights.