RSM333H1 Study Guide - Midterm Guide: Capital Cost Allowance, Tax Shield, Net Present Value
17 Jul 2016
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Pi: ratio of pv of benefits to costs: , accept project if pi>1 (npv>0); useful supplement to npv as it considers the scale of benefits to costs. Irr: discount rate causes npv(project)=0, the number is internal/intrinsic to project and not depend on anything except cfs(project); irr = return r such that , , numerator is tax savings generated by cca expense, half-year rule on cca tax savings if asset held incorporate disposal of asset (disposal value = salvage value sv @ t=n) Replacement project: replacement of existing asset(s) with new; incremental effects include incremental initial cost ( c0) & incremental ccats; ; , ; , , independent: no relationship. Contingent: accept 1 requires accept another mutually exclusive: acceptance of 1 automatically reject other. Equivalent annual cost (eac): suppose making n equal annual payments (eac) for an item that has time horizon for n years, calculate eac, choose lower.
