Explain the basic procedure for determining the net cash flow for a depreciable asset with a five-year MACRS life and no salvage value.

Question

Quizplus · Accepted Answer

The Answer is The cash outflow is the cost of the asset when acquired. The cash inflow is the sum of the present value of inflows in years one through six in which depreciation is taken. The present value of the inflow in each year is determined by the cost recovery deduction times the taxpayer's marginal tax rate (the tax reduction due to depreciation expense) times the discount factor used by the taxpayer for evaluation. The net cash flow is the difference between this initial outflow and the sum of the present value of inflows.

Explain the Basic Procedure for Determining the Net Cash Flow