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What is the present value of cca tax shield

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Reference no: EM132705304

Angelo is considering the purchase of a new equipment to replace an old one. Both items have a 25% CCA rate. The new equipment costs $13,300 and have a useful life of four years, at which time it will have a salvage of zero. The old equipment can be sold now for $630 and could be scrapped for $380 in four years. The operating revenues will increase annually by $9,500 with the new equipment. The tax rate is 22% and the required rate of return is 15%.

- What is the present value of CCA tax shield for the new equipment?

- What is the present value of incremental operating cashflow for the new equipment?

- What is the NPV of the replacement decision? Should Angelo replace the old equipment with the new one?

Reference no: EM132705304

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