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CIMAPRO19-P02-1 Exam - Topic 3 Question 12 Discussion

A company has a 31 December year end and pays corporation tax at a rate of 30%. Corporation tax is payable 12 months after the end of the year to which the cash flows relate. The company can claim tax allowable depreciation at a rate of 25% reducing balance. It pays $1 million for a machine on 31 December 20X4. The company's cost of capital is 10%.What is the present value of the benefit of the first portion of tax allowable depreciation?
D) $68,175
A) $250,000
B) $227,500
C) $75,000

CIMAPRO19-P02-1 Exam - Topic 3 Question 12 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam
Question #: 12
Topic #: 3
[All CIMAPRO19-P02-1 Questions]

A company has a 31 December year end and pays corporation tax at a rate of 30%. Corporation tax is payable 12 months after the end of the year to which the cash flows relate. The company can claim tax allowable depreciation at a rate of 25% reducing balance. It pays $1 million for a machine on 31 December 20X4. The company's cost of capital is 10%.

What is the present value of the benefit of the first portion of tax allowable depreciation?

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Suggested Answer: D

by Glory at May 09, 2022, 12:03 PM

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Salome
10 months ago
Yeah, I agree with Sabine, B feels accurate!
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Herman
10 months ago
Wait, how does the 10% cost of capital affect this?
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Sabine
11 months ago
Definitely leaning towards option B, $227,500 seems right.
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Lonna
11 months ago
I think the present value will be less than that due to the discount rate.
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Felton
11 months ago
The depreciation is 25% of $1M, so $250,000.
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Linwood
11 months ago
This seems like a straightforward question about corporate bonds. I'll review the key characteristics of each option to determine which one best matches the description.
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Isaac
11 months ago
Hmm, I'm a bit confused by the different VXLAN EVPN route formats in the options. I'll need to review my notes on the VXLAN EVPN address family and prefix representation.
upvoted 0 times
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Coral
11 months ago
I'm feeling confident about this one. The SSAA maintenance is carried out during Phase 2 of the process.
upvoted 0 times
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