Answer the following questions with respect to a "depreciation tax shield". A. What is a "depreciation tax shield"? B. What does it generate--a cash inflow or outflow? C. Can it impact the net present value of a capital investment? Why or why not?
A. A depreciation tax shield is a tax savings generated by the fact that a company has a depreciation expense, which is a noncash tax-deductible expense. This lowers taxable income and, therefore, income taxes.
B. It generates a cash inflow.
C. Yes. Since it generates a cash inflow, the present value of the depreciation tax shield has a positive impact on net present value. If a company is considering the impact of taxes on a capital investment decision, they should take into account the present value tax effects of the depreciation tax shield.
You might also like to view...
Which of the following is the best example of a consumer good?
A. the disposable diapers purchased by the new mother for her baby B. the art supplies purchased for the elementary school art center C. the riding lawn mower purchased by the landscaping company D. the paint purchased by the contractor E. the cookies purchased for the daycare center
The English list of values concepts of ________ and ________ could not be precisely translated into German
A) "self-respect" ; "sense of belonging" B) "warm relationships" ; "sense of belonging" C) "security" ; "warm relationships" D) "self-respect" ; "warm relationships"
The ________ of the Fifth Amendment to the U.S. Constitution allows the government to take property for public use
A) Takings Clause B) Just Compensation Clause C) Double Jeopardy Clause D) Ratification Clause
Revealing the presentation plan to the audience decreases their understanding of the presentation
Indicate whether the statement is true or false