FIN 300 Lecture Notes - Lecture 10: Capital Cost Allowance, Tax Shield, Operating Cash Flow

• School: Ryerson University
• Department: Finance
• Course: FIN 300
• Professor: Laleh Samarbakhsh

Document Summary

Capital cost allowance (cca: pv of cca tax shield = (cid:3021)+ (cid:2869)+(cid:2868). (cid:2873) (cid:2869)+ (cid:3020)(cid:3021) The depreciation expense used for capital budgeting should be calculated according to the cca schedule dictated by the tax code. Cca itself is a non-cash expense, consequently, it is only relevant because it affects taxes. Cca is deducted from operating earnings before calculating taxes, which creates a tax shield. Cca tax shield = d x t: d = depreciation expense (cca, t = marginal tax rate. Business taxes in canada and the capital budgeting decision: for calculating cca, assets are assigned to different asset classes by cra, most asset classes use a declining balance depreciation method for computing. Cca: class 13 assets follow the straight-line depreciation method for computing cca. D = (initial cost salvage)/number of years. Very few assets are depreciated straight-line for tax purposes. Multiply percentage given in cca table by the un-depreciated capital cost (ucc)