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Carolyn owns a data processing company. She plans to buy additional equipment for $30,000, use it for three years, and sell it for $10,000. She
Carolyn owns a data processing company. She plans to buy additional equipment for $30,000, use it for three years, and sell it for $10,000. She expects that the use of the equipment will produce a net income of $12,000 per year. The combined federal and provincial incremental tax rate is 40%. Using a CCA rate of 55% and a borrowing interest rate of 12%, answer the following questions. Completing the table below the questions may help do so. a) What is the book value when the equipment is sold? b) Does a gain Recaptured Depreciation or a loss Loss on Disposal occur when the equipment is sold? What is the amount of gain or loss? c) What is the net present worth of the after-tax cash flow? Was it a good decision to purchase the equipment? Round answers to the nearest dollar. Before-Tax Taxable Income CCA After-Tax Year PW Cash Flow Income Taxes Cash Flow -$30,000 n/a -$30,000 -$30,000 +$12,000 +$12,000 3 +$12,000 +$10,000 NPW 0 1 2
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