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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