Supplement_CapitalBudgetingAndTaxes

We call this the residual value the impact of taxes

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Unformatted text preview: . We call this the residual value. The impact of taxes on each of these items is discussed below. Remember: Taxes are on net income. This means taxes are only incurred when an item appears on the income statement. Initial Cash Outflow The initial cash outflow is the investment in the project. The investments we consider are longterm investments, so they appear on the firm’s balance sheet as long-term assets. Because the investment does not appear immediately as an expense on the income statement, there is no tax at the time of the initial investment. However, most long-term assets are depreciated (land is not, but we will consider only investments that are depreciated). Depreciation does appear on the income statements, so depreciation will have an effect on tax...
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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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