Question
5. An investment has a four-year life and costs $200,000 initially. It has an annual pre-tax operating income (EBIT) of $75,000 in the first year.
5. An investment has a four-year life and costs $200,000 initially. It has an annual pre-tax operating income (EBIT) of $75,000 in the first year. Operating income is expected to increase at a rate of 6% over the life of the investment. The depreciation is $10,000 each year. The asset class remains open after the project. The corporate tax rate is 33% and the appropriate discount rate is 9%. The present value of the CCA tax shield for this project is
a) 13,200
b) 10,691
c) 12,089
d) 40,000
e) 32,397
f) 264,074
g) 173,487
h) 187,620
i) None of the above
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