Homework Answers
Asset's tax shelter = (UCC * Tax Rate * CCA Rate) / (After tax
borrowing rate + CCA Rate)
= ($45,000 * 40% * 20%) / (10% + 20%)
= $3,600 / 30%
= $12,000.
Present value of Asset's tax shelter = Asset's tax shelter / (1
+ r)^n
= $12,000 / (1 + 10%)^7
= $12,000 / 1.9487171
= $6,158
Present value of Asset's tax shelter = $6,158.
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