question archive A private company just acquired a new software to do in-house accounting
A private company just acquired a new software to do in-house accounting
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A private company just acquired a new software to do in-house accounting. The company paid $10,000 for the software. Annual upgrades over next 3 years will cost company $1,400 per year. Software belongs to Class 10 of the Canadian CCA system with the CCA rate of 30%. Calculate the PW of the tax savings in year 2 due to the CCA system under annual MARR of 5% and corporate tax rate of 10.5%.
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Depreciation Amount in Year 1 = 10,000*30% = 3000
Depreciation Amount in Year 2 = (10000-3000)*30% = 2100
Annual upgrades over next 3 years will cost company = $1,400 per year.
Total deduction = $ 3500
Tax Benefit in year 2 = $ 3500*10.5% = 367.5
The present value = 367.5 / (1+r)n
= 367.5 / (1+0.05)2 = 367.5 / 1.1025
= 333.33
