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Taxation Concepts: Depreciation Impact

   

Added on  2020-03-16

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Running Head: Investment ManagementInvestment Management
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Investment Management 1ContentsPart 1: Value of Money in Time......................................................................................................2Part 2: Taxation Concepts Discussion.............................................................................................5Purpose and Impact of Tax Depreciation in After-Tax Discounted Cash Flow..........................5Relative merits of Straight Line Depreciation vs. Units of Production Depreciation.................5References........................................................................................................................................7
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Investment Management 2Part 1: Value of Money in TimeQuestion- a)Nominal cash flow refers to the actual dollar amount of money that a business supposes to take in and pay out, without any adjustment for the inflation (La Cava, Hughson, and Kaplan, 2016). The nominal value for the expenditure for the each year is shown below starting from 1/8/2018 and ending at 01/07/2021. The nominal value is calculated considering the inflation rate 3% per annum. The total nominal cash flow total is $927 million is spent by the company in the next 4 years. The calculation of the nominal cash flow is based on the inflation rate. The formula for thecalculation of the nominal cash flow value: - Real value*(1+i/100). YearReal Value (million)Inflation Rate Nominal Value (Million)1/7/2018$200 3%2061/7/2019$300 3%3091/7/2020$250 3%257.51/7/2021$150 3%154.5927Question-b)The nominal value for the expenditure for the each year is shown below starting from 1/1/2018 to the subsequent next 4 years. This shows the year forecast of the expenditure considering the same real value and the inflation rate. Over here, the nominal value is what actually paid by the company to get the work done or to accomplish the project of the company.
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