A paper company purchased a new fork-lift for their warehouse. The fork-lift was purchased for $15,000

and is in an asset class with a CCA rate of 20%. It is a Canadian company and its tax rate is 35%.

a) What dollar-amount of CCA can the company claim as an expense on their Income

Statement in the year they purchased the equipment? What can they claim in the second

year they own the equipment?

b) What are the company's tax savings in year 1 and year 2 as a result of the purchase of the

fork-lift?

The fork-lift provides an annual benefit of $9,000 per year and has $1,500 yearly maintenance costs.

c) Construct basic 'Income Statements' for Year 1 and Year 2 related to the cash flows

associated with the purchase of the new fork-lift. Include tax and depreciation on the

statements.

d) If the company sells the fork-lift at the beginning of Year 3/end of Year 2 for $11,000, what

is the difference between this selling price and the book value of the equipment? Has the

company claimed too much or too little CCA as determined by the market resale value?