For Assets A and C, how important is the estimated salvage value in the overall calculation of the value of the CCA tax shield? Hint: Calculate the ratio of  the PV of the loss of the tax shield to the overall PV of CCA tax shield. What are  the factors that impact the PV of the loss of the tax shield? Discuss your findings.

Asset	CCA rate (d)	Tax Rate (T)	Discount rate (k)	Investment (C0) $,000	Salvage value (SVn) $,000	Project life (N)
A	10%	20%	8%	4000	400	8
B	20%	30%	12%	2000	0	10
C	30%	40%	16%	8000	2000	12

PV (CCA Tax Shield) = [[(C0)(d)(T)/(d + k) ] × [(1 + (0.5k))/(1 + k) ]] - [[(SVn )(d)(T)/(d + k) ] × [ 1/(1 + k)n]]

Answer rating: 100% (QA)

To calculate the importance of the estimated salvage value in the overall calculation of the value of the CCA tax shield for assets A and C we need to ... View the full answer