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What is the present value of the lost CCA tax shield

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Question - Danny Co. is currently assessing an investment in new mixing machinery. The new machine will cost $5,761,000 and last five years. At the end of five years, Danny expects that the machine can be sold for $845,000. The equipment qualifies for a CCA rate of 30%. The machine qualifies for the Accelerated Investment Incentive at 1.5 times in the year of acquisition. The company's current cost of capital for this project is 12% and its income tax rate is 27%. Assume that there is a positive UCC balance remaining in the class after the sale. What is the present value of the lost CCA tax shield on the disposal of this new machine?

a) -$162,964

b) -$99,583

c) -$97,424

d) -$92,470

Reference no: EM132978021

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