August 2004
Intermediate to advanced
656 pages
15h 28m
English
Just as using a depreciation method that writes off more dollars sooner is better from an after-tax perspective, shorter recovery periods are better than longer ones. Even though this leads to higher income taxes being paid in the later years, the present worth of the after-tax tax cash-flow stream will be greater. Again, this is due to the time value of money.
Table 17.7 shows Blizzard Systems' after-tax cash-flow stream using straight-line depreciation with a 3-year recovery period to contrast with the 5-year recovery period in Table 17.3. The straight-line depreciation amount is $50,000/3 = $16,667.
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