A corporation uses net present value techniques in evaluating its capital investment projects. The company is considering a new equipment acquisition that will cost P100,000, fully installed, and have a zero salvage value at the end of its five-year productive life. The corporation will depreciate the equipment on a straight-line basis for both financial and tax purposes. The corporation estimates P70,000 in annual recurring operating cash income and P20,000 in annual recurring operating cash expenses. The corporation's desired rate of return is 12% and its effective income tax rate is 30%. What is the net present value of this investment on an after-tax basis?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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A corporation uses
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