A Company with a Tax Rate of 38% Is Planning

Multiple Choice

A company with a tax rate of 38% is planning to acquire a $1 125 000 asset that has a 30% CCA rate. The company may purchase the asset or lease it. The cost of borrowing is 12%. The prospectivelessor has a 46% tax rate and a 5.5% cost of capital. Which of the following statements is correct about the present value of the tax shield on the CCA to the lessor compared to the present value of the tax shield to the lessee?

A) The value to the lessor is 143% of the value to the lessee
B) The value to the lessee is 139% of the value to the lessor
C) The value to the lessee is 113% of the value to the lessor
D) The value to the lessor is 129% of the value to the lessor