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a) Present Value of Total Tax Shield from CCA for a New Asset
Present Value =
CdT
d k
k
k
CdT
d+ k
k
k +
+
+
=
+
+
2
21
1 05
1 ( )
.
b) Present Value of Total Tax Shield from CCA for an Asset that is Not Newly Acquired
Present Value = UCC
dT
d+k
c) Present Value of Total Tax Shield Lost From Salvage
( ) ( )
Present Value =
S
+k
dT
d+k
or
S
+k
dT
d+k
n n
n
1 1
1 n
, depending on cashflowassumptions
Notation for above formulae:
C =net initial investment
UCC =undepreciated capital cost of asset
S
n
=salvage value of asset realized at end of year n
T =corporate tax rate
k =discount rate or time value of money
d =maximum rate of capital cost allowance
n =total life of investment
, depending on cash flow assumptions