Nortel is considering the purchase of a new call routing system. The system will cost $50M to purchase, an additional $7M to install, and will last for 30 years. The CCA rate associated with the system is 6%, the firm’s margin tax rate is 20%, and the firm’s WACC is 9%.
- Using Excel, create a CCA table, as in class for the 30 year life of the asset. Assume that the asset is sold for its UCC at the end of year 30.
- Add a column that shows the value of the annual tax shield.
- Add a column that shows the PV of the annual tax shield.
- Calculate the total PV of the tax shield in Excel.
- Calculate the PV of the tax shield using the PVCCA formula.
The question belongs to Finance and it is about a company considering purchasing a new call routing system. A CCA table has to be created. The table must show UCC, annual tax shield and the present value of tax shield.
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