Chapter 9: Using Discounted Cash Flow Analysis Flashcards
opportunity cost
benefit or cash flow forgone as a result of an action
net working capital
current assets minus current liabilities
depreciation tax shield
reduction in taxes attributable to the depreciation allowance
capital cost allowance (CCA)
the amount of write-off on depreciable assets allowed by Canada Revenue Agency (CRA) against taxable income
underpreciated capital cost (UCC)
the balance remaining in an asset class that has not yet been depreciated in that year
CCA tax shield
tax savings arising from the capital cost allowance charge
asset class
eligible depreciable assets are grouped into specified asset classes by CRA; each asset class has a prescribed CCA rate
straight-line depreciation
constant depreciation for each year of the asset’s accounting life
declining balance depreciation
this is computed by applying the depreciation rate to the asset balance for each year
half-year rule
only one-half of the purchase cost of the asset is added to the asset class and used to compute CCA in the year of purchase
terminal loss
the positive balance following the disposal of all assets in the class; the UCC of the asset class is set to zero after a terminal loss is recognized
recaptured depreciation
the negative balance that is caused in an asset class by the sale of an asset; it is added to taxable income
