321Class05-Depreciation%20%26%20Taxes

321Class05-Depreciation%20%26%20Taxes - Depreciation Cash...

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Depreciation & Cash Flows
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Free Cash Flow Free Cash Flow (FCF) = EBIT(1-t) + Depr – Capex ± Incr NWC
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Cash Flow (period!) Profit vs. Cash Flow Accrual method Cash method Average vs. Incremental Sunk Costs Allocated Overhead Inflation 1+rnominal=(1+rreal)(1+inflation rate)
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Depreciation Methods Straight line Based on Depreciable Life of asset Depreciation Expense MACRS Depreciation Expense= Lifespan Salvage Cost - = Lifespan Factor MACRS NBV _ * 1 -
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MACRS Depreciation
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Other Depreciation Methods Sum of the Years Depreciation Expense= Units of Production Units of Time + - 2 ) 1 ( Lifespan Lifespan Salvage Cost
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IRS Publication 946: How to Depreciate Property. 1. 3-year property a. Tractor units for over-the-road use. b. Any race horse over 2 years old when placed in service. c. Any other horse over 12 years old when placed in service. d.
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This note was uploaded on 10/28/2011 for the course FIN 321 taught by Professor Smith during the Fall '08 term at University of Illinois at Urbana–Champaign.

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321Class05-Depreciation%20%26%20Taxes - Depreciation Cash...

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