Depreciation and Income Taxes - After-tax economic analyses
4 important questions on Depreciation and Income Taxes - After-tax economic analyses
What is an assumption in the taxation of cash flows?
Give the general procedure for making after-tax economic analyses;
Ek | Cash outflows year k for deductible expenses;
dk | Sum of all noncash or book costs during year k (depreciation);
t | Effective income tax rate on ordinary income (federal, state) where t remains constant during the study period;
Tk | Income tax consequences during year k;
ATCFk | After Tax Cash Flow
What is never included in DCF (Discounted Cash Flows) ?
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Why in case of a loss is the tax CF modeled as a cash inflow for the firm?
- Losses for this project compensate profits on projects in the same period;
- Losses for the firm as a whole compensate losses in other periods;
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