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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?
Suggested Answer: D
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8 comments · newest first
SA
Salome
12 months ago
Yeah, I agree with Sabine, B feels accurate!
HE
Herman
1 year ago
Wait, how does the 10% cost of capital affect this?
SA
Sabine
1 year ago
Definitely leaning towards option B, $227,500 seems right.
LO
Lonna
1 year ago
I think the present value will be less than that due to the discount rate.
FE
Felton
1 year ago
The depreciation is 25% of $1M, so $250,000.
LI
Linwood
1 year 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.
IS
Isaac
1 year 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.
CO
Coral
1 year ago
I'm feeling confident about this one. The SSAA maintenance is carried out during Phase 2 of the process.