Question 1

Why should businesses take into account tax impacts?

Accepted Answer

A) Taxes directly affect a business's cash flow. 
B) Taxes increase the gross profit of a business. 
C) Taxes allow the government to pay for public goods and services. 
D) Taxes reduce the costs of a successful project. 
E) Taxes are savings for a Canadian business.

Question 2

In March of 1998 a company purchased a piece of equipment for $50 000. The corporate tax rate was and still is 30% and the after-tax MARR is 10%. What CTF should the company use if the present worth of the first cost of this equipment, taking into account all future tax savings due to the CCA, is $37 727?

Accepted Answer

A) 0.7018 
B) 0.7213 
C) 0.7425 
D) 0.7545 
E) cannot be determined

Question 3

The Capital Cost Allowance system uses a ________ depreciation rate to calculate the depreciation allowance for capital assets.

Accepted Answer

A) proportional 
B) fixed 
C) straight-line 
D) declining-balance 
E) arbitrary

Question 4

The Capital Salvage Factor

Accepted Answer

A) captures the effect of taxation on an initial investment. 
B) captures the effect on taxation of selling an asset for salvage. 
C) captures the effect of taxation on operating costs. 
D) captures the Half-Year Rule effect. 
E) captures the effect of taxation on annual revenues.

Question 5

Last year an engineering company earned $200 000 in annual revenues, and incurred $100 000 in total operating costs. It also bought a new lathe for $50 000. With a CCA rate of 30% and a corporate tax rate of 50%, how much income tax did the company pay?

Accepted Answer

The answer of Last year an engineering company earned $200...

Question 6

An engineering project involves the purchase of a capital asset with first cost of $100 000, operating costs of $5 000 per year and a service life of 10 years. The expected revenue is $20 000 per year. If the CCA rate is 25%, interest rate is 10% and the corporate tax rate is 33%, what is the project's present worth?

Accepted Answer

The answer of An engineering project involves the purchase of...

Question 7

An engineering company just bought a bending machine for $50 000. Its service life is 10 years, and afterwards its salvage value will be $2 000. Services provided by the machine are expected to bring
$10 000 in annual revenues, and operating costs are estimated at $2 000 per year. Assume that the CCA rate is equal to the depreciation rate, the after-tax interest rate is 5% and the corporate tax rate is 30%. Calculate the present worth of this investment.

Accepted Answer

The answer of An engineering company just bought a bending...

Question 8

In 2002 a firm completed the present-worth tax calculations for the value of the salvage cost of an asset that had reached the end of its useful life. For this purpose, the firm

Accepted Answer

A) multiplied the salvage value of the asset by d, where d is a depreciation rate. 
B) multiplied the salvage value of the asset by (1 - d), where d is a depreciation rate. 
C) multiplied the salvage value of the asset by (1 - t), where t is a corporate tax rate. 
D) multiplied the salvage value of the asset by the CTF. 
E) multiplied the salvage value of the asset by the CSF.

Question 9

A firm has just purchased a vehicle for $100 000. The CCA rate for this vehicle is 40%. The firm's corporate tax rate is 50%. What would be the firm's tax savings due to the CCA by the end of the first year?

Accepted Answer

A) $5 000 
B) $7 500 
C) $10 000 
D) $15 000 
E) $20 000

Exam 8: Taxes