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Refers to decrease in value of an asset w/time. Important for 2 Reasons:. Info must be provided to shareholders. Income tax consequences (our main concern ). Depreciation. Thus, depreciation(D) reduces taxes by an. amt equal to depreciation times the tax rate.

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## Depreciation

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**Refers to decrease in value of an asset w/time**Important for 2 Reasons: Info must be provided to shareholders Income tax consequences(our main concern) Depreciation**Thus, depreciation(D) reduces taxes by an**amt equal to depreciation times the tax rate For example, depreciation of $10,000 for a company in the 40% tax bracket will reduce taxes by $4,000 Tax Consequences Income taxes are calculated as follows: Taxes =(Income – Deductions)*Tax rate Depreciation is one of the dedn’s for businesses

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