To find the Present Value (PV) of the CCA tax shield, we'll follow these steps:

1. Depreciation (CCA) Calculation

Since the capital asset belongs to Class 7 and has a Capital Cost Allowance (CCA) rate of 15%, the CCA for each year is based on the Undepreciated Capital Cost (UCC), which declines each year.

The CCA tax shield is calculated based on the yearly CCA deductions and the tax rate.

2. Formula for Present Value of the CCA Tax Shield

The Present Value of the CCA tax shield can be calculated using the following formula (as the pool remains open and depreciation continues indefinitely):

$PV \, \text{of CCA tax shield} = \frac{\text{CCA rate} \times \text{Initial Capital Investment} \times \text{Tax Rate}}{\text{CCA rate} + \text{Cost of Capital}}$

Where:

• Initial Capital Investment = $600,000
• CCA rate = 15% or 0.15
• Tax rate = 40% or 0.40
• Cost of Capital = 10% or 0.10

3. Substituting the values:

$PV \, \text{of CCA tax shield} = \frac{0.15 \times 600,000 \times 0.40}{0.15 + 0.10}$

$PV \, \text{of CCA tax shield} = \frac{0.15 \times 600,000 \times 0.40}{0.25}$

$PV \, \text{of CCA tax shield} = \frac{36,000}{0.25} = 144,000$

4. Conclusion

The Present Value of the CCA tax shield is $144,000.

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Would you like to discuss how this impacts the overall project valuation or need details on how the formula works?

Here are some related questions to consider:

1. How does the CCA rate affect the overall tax shield?
2. What is the impact of the firm's tax rate on the present value of the CCA tax shield?
3. How does extending or shortening the project duration affect this calculation?
4. Would the salvage value, if any, affect the CCA pool and tax shield?
5. How would a change in the cost of capital affect the present value of the CCA tax shield?

Tip: The CCA tax shield helps lower the effective cost of capital investment by reducing taxable income.