Calculation of Present Value of CCA Tax Shield and Depreciation Tax Shield of a company

Question

The managers of Magma International, Inc.  plan to manufacture engine blocks for classic cars from the 1960s era.  Certain values are given. Calculate following things.

1) Depreciation tax shield in the third year for this project (Nissim, 2002).

CCA at 30% = Machinery Cost*30%

Depreciation tax shield = Machinery cost- CCA

Machinery cost

CCA @30%

Depreciated Tax shield

800000

560000

392000

2) Present value of CCA tax shield

Machinery cost

CCA @30%

Depreciated Tax shield

Discounting Factor

Present value of CCA tax shield

800000

560000

392000

274400

192080

Discounted Value @ 12%

Summary

This question belongs to accounting and discusses about calculation of depreciation tax shield and present value of CCA tax shield of a company.

Total word count: 150

 

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