Impacts of Depreciation Method Choice on Capital Budget Analysis

  • When analyzing capital projects, companies are incentivized to apply accelerated depreciation methods (refer to Financial Reporting part 1 for more on these methods) because accelerating depreciation generates higher after tax cash flows in the project’s early years.
  • As a result of higher early year after-tax cash flows, accelerated depreciation methods typically create higher net present values when compared to the straight line depreciation method.
  • Some countries allow the use of special depreciation methodologies solely for tax reporting purposes, but not for financial reporting purposes.
  • The U.S. tax code allows companies to use the Modified Accelerated Cost Recovery System (MACRS), which has a specific depreciation schedule for different categories of capital investment.
  • An objective of MACRS is to incentivize companies to make investments by reducing their tax burden.

Data Science in Finance: 9-Book Bundle

Data Science in Finance Book Bundle

Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.

What's Included:

  • Getting Started with R
  • R Programming for Data Science
  • Data Visualization with R
  • Financial Time Series Analysis with R
  • Quantitative Trading Strategies with R
  • Derivatives with R
  • Credit Risk Modelling With R
  • Python for Data Science
  • Machine Learning in Finance using Python

Each book includes PDFs, explanations, instructions, data files, and R code for all examples.

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Data Science in Finance: 9-Book Bundle

Data Science in Finance Book Bundle

Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.

What's Included:

  • Getting Started with R
  • R Programming for Data Science
  • Data Visualization with R
  • Financial Time Series Analysis with R
  • Quantitative Trading Strategies with R
  • Derivatives with R
  • Credit Risk Modelling With R
  • Python for Data Science
  • Machine Learning in Finance using Python

Each book comes with PDFs, detailed explanations, step-by-step instructions, data files, and complete downloadable R code for all examples.