BU393 Lecture Notes - Lecture 4: Nopat, Operating Cash Flow, Tax Shield
Document Summary
Chapter 10 capital budgeting: estimating cash flows. Cra"s system for calculating depreciation expenses for tax purposes is called the capital cost allowance (cca) system. Based on declining balance depreciation method and assigns asset to property classes. Each class has different depreciation rate, e. g. building is 4%, vehicles is 30% Depreciation = depreciation rate * undepreciated capital cost at the end of the previous year: depr = dr * ucct-1. In the first year of an asset"s life, a company may only claim a half year of depreciation, e. g. half the depreciation rate. Depreciation creates a tax shield, since it"s tax deductible, it reduces taxes. Ocf = ebitda * (1-t) + t * depr. If an asset is sold for more than its purchase price, then the difference is a taxable capital gain, otherwise, the proceeds from selling an asset are not taxable. Pv tax shields = [t * dr * (uccn s)]/(k + dr)
