Question :
Creston Ltd. purchased a piece of equipment for $100,000 (list : 1186201
Creston Ltd. purchased a piece of equipment for $100,000 (list price). The equipment was added to the $350,000 of opening UCC for Class 8 (20%), and the company traded-in old class 8 equipment, paying $80,000 difference. The company uses straight-line depreciation, estimates a 20 year useful life but no salvage value for the new equipment. The tax rate is 35%, and Creston has a required rate of return of 9.0%.
31) What is the balance in the Class 8 pool after the addition of the new equipment?
A) $350,000
B) $410,000
C) $450,000
D) $430,000
E) $460,000
32) What is the CCA claim in year 1?
A) $3,500
B) $7,000
C) $8,000
D) $16,000
E) $18,400
33) What are the tax savings in year 2 from the investment?
A) $3,500
B) $7,000
C) $8,000
D) $5,040
E) $18,400
34) Based on the above data only, what are the tax savings from the CCA of class 8 for year 2?
A) $45,760
B) $70,400
C) $75,000
D) $24,640
E) $86,000
35) 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:
Cash
1,500
Accumulated Depreciation
1,100
Loss
300
Computer # 4
2,800
(disposal of old computer)
Computer # 7
5,000
Cash
5,000
How is the $300 loss treated in discounted cash flow analysis?
A) It reduces the net additions to class 10 for calculating CCA.
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 CCA, and (the loss) times (the tax rate) is an after-tax cash flow.
E) It is ignored.
36) The income tax depreciation method referred to as CCA
A) allows a corporation some flexibility in choosing the class an asset is assigned to.
B) ignores estimated salvage value.
C) only applies to businesses organized as corporations.
D) provides an organization some flexibility in choosing a method of amortization.
E) allows amortization over the asset’s useful life as determined by management.
37) A project’s net present value is increased if
A) the CCA rate is decreased.
B) the discount rate is increased.
C) the CCA rate is increased.
D) the company’s net income is negative during the life of the project.
E) the rate of inflation rises.
38) Which of the following are not considered in capital-budgeting?
A) initial machine investment
B) depreciation
C) cash flow from current disposal of old machine
D) cash flow from terminal disposal of new machine
E) recurring after-tax operating flows
39) Which of the following is not a relevant cash flow in capital budgeting?
A) after-tax cash flow from current disposal of old asset
B) after-tax cash flow from future disposal of asset at life’s end
C) after-tax cash flow from accumulated depreciation
D) initial asset investment of the replacement machine
E) after-tax annual cash flows relating to the new asset
40) A new machine will cost $500,000. It is in a CCA class pool that uses a declining balance rate of 30%. The company’s tax rate is 40% and it requires a 15% rate of return on investments. Calculate the cash savings from the tax shield the first year assuming the savings occur at year end.
A) $126,998.42
B) $78,214.34
C) $132,445.53
D) $119,765.22
E) $26,086.96
