Depreciation Recovery Period and Income Taxes
Just as using a depreciation method that writes off more dollars sooner is better from an after-tax perspective, shorter recovery periods are better than longer ones. Even though this leads to higher income taxes being paid in the later years, the present worth of the after-tax tax cash-flow stream will be greater. Again, this is due to the time value of money.
Table 17.7 shows Blizzard Systems' after-tax cash-flow stream using straight-line depreciation with a 3-year recovery period to contrast with the 5-year recovery period in Table 17.3. The straight-line depreciation amount is $50,000/3 = $16,667.
Get Return on Software: Maximizing the Return on Your Software Investment now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
