Learning Objectives

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# Learning Objectives - PowerPoint PPT Presentation

Learning Objectives. Appraise the use of the cost of capital as the discount rate in capital budgeting analysis. (LO 4 )

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## Learning Objectives

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Learning Objectives
• Appraise the use of the cost of capital as the discount rate in capital budgeting analysis. (LO4)
• Integrate the cash flows that result from an investment decision, including the after tax operating benefits and the tax shield benefits of capital cost allowance (amortization). (LO5)
• Perform NPV analysis to assist in the decision-making process concerning long-run investments. (LO6)

LO5

Capital Cost Allowance
• Amortization for income tax purposes
• Capital Cost Allowance (CCA) is the maximum amount of amortization allowable under the tax act
• Capital assets are divided into a number of classes (pools)
• Each class is assigned a CCA rate;
• ex. Class 8 is Machinery with a rate of 20%
• CCA is calculated on the Un-depreciated Capital Cost (UCC) in the pool (declining balance)
• CCA provides a tax shield over the life of the investment
• A formula provides the present value of the CCA tax shield

LO5

Table 12-10Liquidation of Asset Pool

*Only original cost of \$10,000 is deducted from pool; excess of \$2,000 is capital gain