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Which of the following is the best definition for depreciation (CCA) tax shield?
A) The difference between a firm's future cash flows with a project and without the project.
B) The portion of cash flows of a new project that come at the expense of a firm's existing operations.
C) The present value of a project's costs calculated on an annual basis.
D) Tax saving that results from the CCA deduction, calculated as depreciation multiplied by the corporate tax rate.
E) Evaluation of a project based on the project's incremental cash flows.
Depreciation Tax Shield
A reduction in taxable income resulting from the ability to deduct depreciation expenses, thereby lowering the tax liability for a business.
CCA Deduction
Stands for Capital Cost Allowance deduction, a tax deduction in certain jurisdictions that allows businesses to deduct the depreciated value of capital assets.
Corporate Tax Rate
The tax rate imposed on the net income of a corporation by the government.
- Assess and comprehend the financial benefits associated with the disposal of assets and depreciation for tax purposes.
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Learning Objectives
- Assess and comprehend the financial benefits associated with the disposal of assets and depreciation for tax purposes.
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