whats DDB's impact on operating cash flow

[h21]

i thought operating cash flow would be lower, or its higher because you are paying less tax?

 

[h21]

whats depreciation’s impact on periodic and total cash flow, total cash flow is the same?

 

[bfry]

Whats depreciation’s impact on CF - NOTHING. ITS NOT A CF.
It does lower current periods taxes - yes absolutely. But remember it creates a DTL. Over the life of the asset total CF will be the same because the DTL eventually reverses out (assuming no more reinvestment, etc.). This is why using DDB vs. SL will have an impact on NPVs - higher NPVs because you realize higher CFs sooner under DDB vs. SL.

 

[h21]

bfry wrote:
Whats depreciation’s impact on CF - NOTHING. ITS NOT A CF.
It does lower current periods taxes - yes absolutely. But remember it creates a DTL. Over the life of the asset total CF will be the same because the DTL eventually reverses out (assuming no more reinvestment, etc.). This is why using DDB vs. SL will have an impact on NPVs - higher NPV’s because you realize higher CFs sooner under DDB vs. SL.

and LIFO doesnt create DTL?

 

[S2000magician]

There’s no effect on pretax cash flow.
It will affect cash flow after taxes as the taxable income will be different (than using straight line, for example), so income taxes will be different.

 

[bfry]

h21 wrote:

bfry wrote:
Whats depreciation’s impact on CF - NOTHING. ITS NOT A CF.
It does lower current periods taxes - yes absolutely. But remember it creates a DTL. Over the life of the asset total CF will be the same because the DTL eventually reverses out (assuming no more reinvestment, etc.). This is why using DDB vs. SL will have an impact on NPVs - higher NPVs because you realize higher CF’s sooner under DDB vs. SL.

and LIFO doesnt create DTL?

Correct - no DTA/DTL for LIFO vs. FIFO. Its a quirk in the tax code in which companies cannot keep seperate books for tax and for financial reporting of Inventory. Uncle Sam says if you use LIFO in financial reporting you MUST use LIFO for taxes and vice versa This is not the case for depreciation of assets - Uncle Sam says the depreciation method you use in financial reporting and the method you use for taxes can be different thus creating the DTL.