Depreciating a fixed asset creates future tax deductions. The impact of these tax deductions on the...
Depreciating a fixed asset creates future tax deductions. The impact of these tax deductions on the NPV cash flow of a project for a taxable corporation is:
a. Depreciation impacts the replacement decision for capital projects but not the NPV.
b.Increases NPV because the non-discounted cash inflow from the tax deduction is included.
c.There is no impact. Depreciation is a non-cash expense and is not included in the NPV analysis.
d.Increases NPV because the discounted cash inflow from the tax deduction is included.
Homework Answers
Solution:
Depreciating a fixed asset creates future tax deductions. The impact of these tax deductions on the NPV cash flow of a project for a taxable corporation is "Increases NPV because the discounted cash inflow from the tax deduction is included."
Hence option d is correct.
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