FIN 300 Lecture Notes - Lecture 9: Capital Cost Allowance, Tax Shield, Tax Rate

• School: Ryerson University
• Department: Finance
• Course: FIN 300
• Professor: Laleh Samarbakhsh

Document Summary

Capital cost allowance: cca is depreciation for tax purposes, the depreciation expense used for capital budgeting should be calculated according to the. T = marginal tax rate: business taxes in canada and the capital budgeting decision. For calculating cca, assets are assigned to different asset classes by cra. Most asset classes use a declining balance depreciation method for computing cca. Class 13 assets follow the straight-line depreciation method for computing cca: straight-line depreciation. Very few assets are depreciated straight-line for tax purposes: declining balance. Multiply percentage given in cca table by the un-depreciated capital cost (ucc) Can use pv of cca tax shield formula (explain later: example. X co. has just bought a new bottling machine for ,000. Management estimates that the useful economic life of the machine is 4 years and that it will have a salvage value of ,000. D = (initial cost salvage) / number of years. Cca = capital cost allowance: example (contd. )