Question :
35)
Which of the following statements concerning CCA TRUE? 35)
______ A)
the : 1196195
35)
Which of the following statements concerning CCA is TRUE? 35)
______ A)
the amortization method used does not affect cash outflows B)
the accounting book value for all assets in a class equals the UCC for that class C)
the total CCA available over the life of the asset depends on the method of amortization used D)
the amortization method used does not affect cash inflows from operations E)
since CCA does not involve a cash expenditure, it can be ignored in capital-budgeting decisions
36)
A company purchased a class 8 asset (there were no disposals). If the asset cost $20,000, had an estimated salvage value of $5,000, using the declining balance method with an allowable rate of 20%, the allowable CCA in the first and second years would be, respectively, 36)
______ A)
$4,000 and $3,200 B)
$2,000 and $3,600 C)
$1,500 and $2,700 D)
$3,000 and $1,200 E)
$3,000 and $2,400
37)
In the following Tax Shield formula, what does the A represent?
(investment / A)(CCA rate / CCA rate + RRR)[(2 + RRR)/ 2(1 + RRR)] 37)
______ A)
marginal tax rate B)
accrual accounting rate of return C)
inflation rate D)
CCA class E)
discount rate
38)
When calculating the Lost Tax shield concerning the terminal disposition of an asset four years from now, 38)
______ A)
we discount the Lost Tax Shield amount by (1 + tax rate). B)
we discount the Lost Tax Shield amount by (1 – tax rate). C)
the discount is already included in the formula. D)
the amount calculated by the Tax Shield formula must also be discounted for the four years by the relevant discount factor. E)
we discount the Lost Tax Shield amount by the tax rate.
39)
A tool and dye company is considering replacing a lathe with a newer model. The company wants to bid on a special contract that will last six years, at which time they will not need the lathe they currently have, nor the newer model if they decide to acquire it now (it will be disposed of and not replaced). Other data are;
cost of new lathe$100,000
trade-in allowance on old lathe14,000
useful life of new lathe6 years
salvage value of new lathe44,000
tax rate35%
RRR9%
Annual cash operating costs (new)20,000
Annual cash operating costs (old)45,000
Salvage value of old lathe in 6 years3,000
Required:
Calculate the Present Value of the lost tax shield(s), assuming the company decides to purchase the new lathe, and disposes of the old one at the same time. 39)
______ A)
OLD$694NEW$6,332 B)
$14,00044,000 C)
$69410,620 D)
$10,62014,000 E)
$9,10028,600
40)
A company purchased a piece of equipment for $100,000 (list price). The equipment was added to the $350,000 of opening UCC for class 8, and the company traded-in old class 8 equipment, paying $80,000 difference. The company uses straight-line amortization, estimates a 20 year useful life but no salvage value for the new equipment. Their tax rate is 35%, and they have a RRR of 9.0%. What is the after-tax cost of the new equipment? 40)
______ A)
$52,000 B)
$65,000 C)
$23,141 D)
$76,859 E)
$80,000
41)
A company purchased a piece of equipment for $100,000 (list price). The equipment was added to the $350,000 of opening UCC for class 8, and the company traded-in old class 8 equipment, paying $80,000 difference. The company uses straight-line amortization, estimates a 20 year useful life but no salvage value for the new equipment. Their tax rate is 35%, and they have a RRR of 9.0%. What are the tax savings in year 1 from the investment? 41)
______ A)
$3,500 B)
$8,000 C)
$16,000 D)
$7,000 E)
$18,400
42)
A company purchased a piece of equipment for $100,000 (list price). The equipment was added to the $350,000 of opening UCC for class 8, and the company traded-in old class 8 equipment, paying $80,000 difference. The company uses straight-line amortization, estimates a 20 year useful life but no salvage value for the new equipment. Their tax rate is 35%, and they have a RRR of 9.0%. What are the tax savings in year 2 from the investment? 42)
______ A)
$3,500 B)
$16,000 C)
$18,400 D)
$7,000 E)
$8,000
43)
A company purchased a piece of equipment for $100,000 (list price). The equipment was added to the $350,000 of opening UCC for class 8, and the company traded-in old class 8 equipment, paying $80,000 difference. The company uses straight-line amortization, estimates a 20 year useful life but no salvage value for the new equipment. Their tax rate is 35%, and they have a RRR of 9.0%. Based on the above data only, what are the tax savings from the CCA of class 8 for year 2? 43)
______ A)
$86,000 B)
$75,000 C)
$45,760 D)
$78,000 E)
$70,400
44)
A company purchased computer equipment that is class 10 for Income Tax purposes (class 10 is declining balance, but with a 30% rate). The company made the following two journal entries
cash1,500
accum amortization1,100
loss300
computer # 42,800
(disposal of old computer)
computer # 75,000
cash5,000
Required:
How is the $300 treated in discounted cash flow analysis? 44)
______ A)
It reduces the net additions to class 10 for calculating CCA, and (the loss) times (the tax rate) is an after-tax cash flow. B)
(the loss) times (the tax rate) is an after-tax cash flow. C)
The loss plus the accumulated amortization are disposals for class 10. D)
It reduces the net additions to class 10 for calculating CC. E)
Ii is ignored.
