Spherical Manufacturing recently spent $15 million to purchase some equipment used inthe manufacture of disk drives. This equipment has a CCA rate of 30% and Spherical'smarginal corporate tax rate is 29%.a. What are the annual CCA deductions associated with this equipment for the firstfive years?b. What are the annual CCA tax shields for the first five years?c. What is the present value of the first five CCA tax shields if the appropriate discountrate is 8% per year?d. What is the present value of all the CCA tax shields assuming the equiment is neversold and the appropriate discount rate is 8% per year?e. How might your answer to part (d) change if Spherical anticipates that its marginalcorporate tax rate will increase substantially over the next five years?a. What are the annual CCA deductions associated with this equipment for the firstfive years?The CCA deduction for year 1 is $(Round to the nearest dollar.)

Capital Cost Allowance (CCA) is the method of charging depreciation on the written down value of the…

Answered: Spherical Manufacturing recently spent…

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter15: Choice Of Business Entity—other Considerations

Section: Chapter Questions

Problem 68P

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Spherncal Manufacturing reoenty spent $14 milion to purchase some equipment used in the manufacture of dsk drives. This equipment has a CCA rate of 20% and Bphericals marginal corporate tax rate in 35% a. What are he annual CCA deductions associated with this equipment for the fiest five years? b. What are the annual CCA tax shields for the first five years? e. What is the present value of the first five CCA tax shields if the appropriate discount rate is 12% per year? d. What is the prosent value of alt the CCA tax shieids assuming the equiment is never sold and the appropriate discount rate is 12% per yea? e. How might your answer to part (d) change if Spherical anticipates that ts marginal corporate tax rate will increase substantialy over the next five years? a. What are the annual CCA deductions associated with this equipment for the first five years? The CCA deduction for year 1 is S (Round to the nearest dolar.)
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