Calculate the total pv of the tax shield, Basic Statistics

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Nortel is considering the purchase of a new call routing system. The system will cost $50M to purchase, an additional $7M to install, and will last for 30 years. The CCA rate associated with the system is 6%, the firm's margin tax rate is 20%, and the firm's WACC is 9%.

a. Using Excel, create a CCA table, as in class for the 30 year life of the asset. Assume that the asset is sold for its UCC at the end of year 30.

b. Add a column that shows the value of the annual tax shield. 

c. Add a column that shows the PV of the annual tax shield. 

d. Calculate the total PV of the tax shield in Excel. 

e. Calculate the PV of the tax shield using the PVCCA formula. 

 

 


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