Taxes and Depreciation. MACRS. Review. What is Depreciation? Decline in value due to wear and tear (deterioration), obsolescence and lower resale value. Why do we compute depreciation? To reduce net profit before taxes =>Decrease taxes =>Increase the cash flow after taxes. Review (cont’d).
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= -11000 + 3000 (P/A, 0.09, 5) + 1000 (P/F, 0.09, 5)
= -11000 + 3266.52 (P/F, 0.09, 1) + 3755.8 (P/F, 0.09, 2)
+ … + (1800+600) (P/F, 0.09, 5)