This means that there is no tax impact from the sale

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Unformatted text preview: e from the asset’s sale. This means that there is no tax impact from the sale. In other words, the before tax cash inflow from the residual value and the after tax cash inflow from the residual value are equal. Depreciation Tax Shield In this course we assume that the capital budget investment is a depreciable asset. Occasionally, firms invest in non-depreciable assets such as land as part of a capital budgeting project. You will learn how to handle those instances in future business courses. When a depreciable long-lived asset is purchased, its purchase is recorded as an asset on the firm’s balance sheet. Over time, portions of the asset’s cost are matched to income and recorded as depreciation expense on the income statement. Because depreciation decreases net income, it decreases the amount of federal inc...
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This note was uploaded on 09/29/2011 for the course 06A 002 taught by Professor Stuff during the Spring '11 term at University of Iowa.

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