One division of your company restores old antique vehicles. For example, the company just bought an old car for $10,000 and guesses that they can sell the car for $20,000 in 3 years after a few repairs and after they take the vehicle to some car shows etc. They think the cost of fixing the car will be about $1,000 each year for the next 3 years. One employee, Roger, thinks that there is no use in claiming CCA (depreciation) over the next 3 years as the selling price will be higher than the purchase price. Harpeet, however, says that even though CCA recapture and or capital gains will likely have to be paid, it will still be worth claiming CCA on this antique vehicle each year. Who is correct, and why? (hint: develop a very simple income statement/cash flow statement for each scenario). Make sure to justify your answer with detailed calculations. MARR is 10%, and the tax rate is 40%. The CCA rate is 30%.

One division of your company restores old antique vehicles. For example, the company just bought an old car for $10,000 and guesses that they can sell the car for $20,000 in 3 years after a few repairs and after they take the vehicle to some car shows etc. They think the cost of fixing the car will be about $1,000 each year for the next 3 years. One employee, Roger, thinks that there is no use in claiming CCA (depreciation) over the next 3 years as the selling price will be higher than the purchase price. Harpeet, however, says that even though CCA recapture and or capital gains will likely have to be paid, it will still be worth claiming CCA on this antique vehicle each year. Who is correct, and why? (hint: develop a very simple income statement/cash flow statement for each scenario). Make sure to justify your answer with detailed calculations. MARR is 10%, and the tax rate is 40%. The CCA rate is 30%.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter21: Risk Management

Section: Chapter Questions

Problem 5P

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