FIN 300 Lecture Notes - Lecture 10: Capital Cost Allowance, Tax Rate, Tax Shield

• School: Ryerson University
• Department: Finance
• Course: FIN 300
• Professor: Scott Anderson

Document Summary

The depreciation expense used for capital budgeting should be calculated according to the. 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. 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. 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 un-depreciated capital cost (ucc) Can use pv of cca tax shield formula (explain later) Brute force approach - ocf = ebit + depreciation taxes. Tax shield approach - ocf = (s-c-d) + d (s-c-d)*t. = (s-c)*(1-t) + d*t after tax ocf, cca tax shield ignoring cca.