Module 6 - Unequal Lives, Depreciation, Tax Flashcards
What happens if economic life > study period?
Include salvage value in calculations
What happens if economic life < study period?
Assume original is replaced by identical one
Or alternative is replaced by superior alternative
Or remaining period met by leasing
What happens with unequal economic lives?
If one project is completed faster, find NPV for both projects and compare
What happens if the study period is unknown and the study period is unknown?
Least common multiples
Shortest lifespan
Longest lifespan
What is depreciation?
Fixed assets lose their value
What is physical depreciation?
Reduction in assets capacity to perform its service
What is functional depreciation?
Results from changes in organization or in tech that decrease or eliminate the need for an asset
What is economic depreciation?
Change in market value of the asser
What is the purpose of keeping track of depreciation?
Can be listed as expenses from the gross income over period where asset depreciates
What are the primary tax calculations?
Gross Income = Revenue-Costs
EBIT=G.I.-Expenses-Depreciation
EBT=EBIT-Interest Paid
Tax Payable = EBT*Tax Rate
Net Income = EBT-Tax Payable
What are the requirements for depreciable property?
Must be used in business or be held for production of income
Must have definite service life
Must be something that wears out
What is the cost basis?
Total cost that is claimed as an expense over assets life
What is the half in first year rule?
You can only claim 50% of cost of asset gets added to CCA class
