FIN 300 Lecture Notes - Lecture 9: Capital Cost Allowance, Tax Rate, Tax Shield
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Cffa = ocf net capital spending additions to nwc. Ocf = ebit + depreciation taxes. The depreciation expense used for capital budgeting should be calculated according to the cca schedule dictated by the tax code. Cca itself is a non-cash expense, consequently, it is only relevant because it affects taxes. Cca is deducted from operating earnings before calculating taxes, which creates a tax shield. 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. D = (initial cost salvage) / number of years. Very few assets are depreciated straight- line for tax purposes. Multiply percentage given in cca table by the undepreciated capital cost (ucc) Can use pv of cca tax shield formula. The cca expense is usually different every year.