Thanks, Question is bit twisted, very hard to understand whether he is asking to do marginal analysis...
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Israr Ahmed
Saudi Arabia
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Original Message:
Sent: 04-05-2015 08:50 PM
From: Hazem Abd Elkawy
Subject: Capital Budgeting Process
Dear Israr,
Because the current equipment which will be disposed still have TWO years useful life. and the question ask u to calculate the net cash flow for the FIRST year.
The point is that you need to find the difference between the new and old depreciation tax shield,,, What if we keep using the old one, comparing with what if we use the new one.
Incremental after-tax operating cash flows for each year of a capital project consist of two components:
1-The after-tax cash inflows from operations PLUS,
2-The difference in depreciation tax shields between the old and new equipment.
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Hazem Abd Elkawy CMA
Accountant
Cairo
Egypt
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Original Message:
Sent: 04-03-2015 08:20 AM
From: Israr Munir
Subject: Capital Budgeting Process
Dear Members,
May you please have a look on the attachment, as per my understanding the solution is as follows:
| Description | Gross amount $ | Net Amount $ |
| Net Cash flow increased income | 100,000 | 60,000 |
| Depr. Tax sheild | 16,000 | 6,400 |
| Tax Sheild on the loss of existing Equip. | 4,000 | 1,600 |
| Net cash flow at the end of year 1 | | 68,000 |
I could not understand why in Gliem's solution tax shield is calc. on Current Depr. Less old Depr. multiplied by tax rate
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Israr Ahmed
Saudi Arabia
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