The effects of taxation on capital budgeting
ID:CVETC

Video Overview

A financial manager needs to make decisions regarding the entity’s investments in non-current assets. These types of decisions are known as capital budgeting. There are various techniques that are used to make these decisions based on which projects will add value to the firm. Taxation impacts on the cash flows of a project as revenue increases tax payable, and costs reduce tax payable. There are also capital tax allowances on the purchase of a non-current asset which reduce tax payable, and when the asset is sold, either a tax recoupment, which increases tax payable, or a scrapping allowance, which reduces the tax payable, comes into effect. In this tutorial we will focus on the effects of taxation on capital budgeting, focusing on the net present value (NPV) technique.