Share
Explore BrainMass

Corporate tax rate and depreciation impact on cash flows

How does the corporate tax rate and depreciation impact cash flows when evaluating financial alternatives?

Solution This solution is FREE courtesy of BrainMass!

Depreciation reduces the taxable income by the depreciation amount. It does not directly impact the cash flow, but increases it by the tax rate

Consider this example

Income = 100
Depreciation = 10
Tax Bracket 20%

Taxable income w/o dep = 100 thus tax = 20 and after tax cash flow = 80

Taxable income w/depreciation = 90 , thus tax = 18 and after tax cash flow = 82 (because depreciation is not a cash flow)