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Outline: Chapter 8 Application of Capital Budgeting Techniques

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Outline: Chapter 8 Application of Capital Budgeting Techniques

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    1. ©2002 Pearson Education Canada Inc., Toronto, Ontario Outline: Chapter 8 Application of Capital Budgeting Techniques Corporate Taxes Capital cost allowance Other important provisions of the Income Tax Act How to Estimate Relevant Cash Flows The initial investment Operating cash flows Ending cash flow Those hard-to-estimate cost and benefits An expansion project example

    2. ©2002 Pearson Education Canada Inc., Toronto, Ontario Outline: Chapter 8 Application of Capital Budgeting Technique (continued) Replacement Decisions Incremental cash flows Estimating incremental cash flows for replacement decision A replacement project example More on Cash Flow Estimation Inflation Why are financing costs excluded? Has abandonment been considered?

    3. ©2002 Pearson Education Canada Inc., Toronto, Ontario Outline: Chapter 8 Application of Capital Budgeting Technique (concluded) Appendix 8A The Interaction of the Financing and Investment Decisions The adjusted present value method Flows-to-equity When do NPV, APV and FTE give the same answer? When adjusted present value and flows-to-equity come in handy

    4. ©2002 Pearson Education Canada Inc., Toronto, Ontario Corporate Taxes Capital Cost Allowance (CCA) CCA is what depreciation for tax purposes is called Depreciation under GAAP vs CCA Match revenue and expenses under GAAP Group into 44 different asset classes under CCA CCA is the amount of depreciable assets that can be deducted from revenue to arrive at taxable income for Canada Customs and Revenue Agency (Revenue Canada) Undepreciated capital cost (UCC) Total asset cost minus accumulated CCA for that class Put-in-use year Half-year rule Declining balance method

    5. ©2002 Pearson Education Canada Inc., Toronto, Ontario Corporate Taxes Capital Cost Allowance (continued) Common capital cost allowance classes

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