153x Filetype PPTX File size 0.14 MB Source: ahmadprayudi.blog.uma.ac.id
Learning Objective 1 Compute the after-tax net present values of projects. Income Taxes and Capital Budgeting What is an example of another type of cash flow that must be considered when making capital-budgeting decisions? Income taxes Marginal Income Tax Rate • In capital budgeting, the relevant tax rate is the marginal income tax rate. • This is the tax rate paid on additional amounts of pretax income. Effects of Depreciation Deductions • For tax purposes, accelerated depreciation is generally allowed. • The focus is on the tax reporting rules, not those for public financial reporting. • The number of years over which an asset is depreciated for tax purposes is called the recovery period. Depreciation Deductions for Capital Budgeting • Depreciating a fixed asset creates future tax deductions. • The present value of this deduction depends directly on its specific yearly effects on future income tax payments.
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