ACCOUNTING-Capital budget decisions weigh the amount of money that needs

QUESTION

Capital budget decisions weigh the amount of money that needs to be invested now with the amount of money that can be generated over time because of the money that is invested now. Weighing investments against returns involves a number of considerations, but one of those considerations that is often overlooked is the “depreciation tax shield”. How does the depreciation tax shield work, and how does it affect capital budgeting decisions? What kinds of businesses will most benefit from the depreciation tax shield?

ANSWER:

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