b

a) What is Capital Cost Allowance and why is it important in the company's financial statements? If CCA is calculated wrongly how does this affect tax? Give your answer with an example of Income Statement (10 Marks) b) You purchase equipment for $50,000 and it costs $5,000 to have it delivered and installed. Based on past information, you believe that you can sell the equipment for $8,500 when you are done with it in 3 years. The company's marginal tax rate is 20%. If the applicable CCA rate is 10% and the required return on this project is 5%, what is the present value of the CCA tax shield by using the formula (10 Marks) IST PV tax shield on CCA = 1 +0.5r X d+r 1 +r Sndt X dur 1 (1 + r)