Layton Company Is Replacing an Old Delivery Van with a New

Layton Company is replacing an old delivery van with a new van. The following data relate to this investment decision:
$\begin{array}{|l|r|}\hline \text { Cost of the new van now } & \$ 20,000 \\\hline \text { Annual cash operating costs of the new Van } & \$ 6,000 \\\hline \text { Useful life of the new van } & 6 \text { years } \\\hline \text { Salvage value of the van at the End of six years } & \$ 2,000 \\\hline \text { Original cost of the old van two years ago } & \$ 18,000 \\\hline \text { Book value of the old van now } & \$ 4,000 \\\hline \text { Salvage value of the old van now } & \$ 1,000 \\\hline \text { Salvage value of the old van six year from now } & \$ 200 \\\hline \text { Annual Cash operating Costs of the old van } & \$ 8,000 \\\hline\end{array}$
The old van is in Class 10 with a maximum CCA rate of $30 \%$ and will last for six more years. The new van is also in Class 10 with a maximum CCA rate of $30 \%$ . The income tax rate is $40 \%$ , and the company's after-tax cost of capital is $10 \%$ .
- What is the value of the incremental UCC (the "C" in the PV CCA formula) used in the calculation for the present value of CCA tax savings?

A) $20,000
B) $19,000
C) $18,000
D) $16,000

Correct Answer:

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