What is the present value of the CCA tax shield

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Question - Your firm, which operates in the mining sector, is considering a proposal to build a new processing plant on the site of one of its vacant warehouses. The new building will cost $100 million, while the frame of the current warehouse can be sold for $2.5 million. The CCA rate on the building is 5%, the firm's weighted average cost of capital is 11%, and the firm's tax rate is 21%. The building qualifies for the Accelerated Investment Incentive, and 1.5 times CCA can be claimed in the year of acquisition. What is the present value of the CCA tax shield associated with the building if your firm intends to use a 20-year planning horizon for the project and estimates that salvage on the building at the end of this period will be $10 million?

a) $4,132,601

b) $6,398,437

c) $6,715,477

d) $6,887,669

Reference no: EM132637901

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