M Dana's Dressmakers and Alterations Ltd

M Dana's Dressmakers and Alterations Ltd. is looking at the purchase of several serging machines for their new third location. The company can buy the equipment for $6,000 and finance it with a three-year operating loan at 6% where interest is paid at the end of each year and the principal is paid at the end of the term. The capital cost allowance rate (CCA) is 25% and the income tax rate is 30%. What is the present value of the tax shield from the equipment purchase over the first three years if the cost of capital is 6%?

A) $1,099
B) $1,165
C) $2,336
D) $3,664
E) $3,884

Correct Answer:

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