Financial Decisions, Winter 2011, Article 2
The Impact of Bonus Depreciation on Project Decision Making

Gregory A. Kuhlemeyer* and John M. Wachowicz, Jr.**

*Carroll University **The University of Tennessee


Abstract

This paper develops an Excel model useful to students, academics, and business professionals that values the impact of government driven increases in temporary first-year depreciation allowances, known as "bonus depreciation." Bonus depreciation is a temporary measure that has been used as a tool to stimulate economic activity by directly affecting the profitability and payback of a project and thereby impacting the investment decision of managers. We develop an evaluation technique, using net present value (NPV), that integrates the effects of bonus depreciation in a flexible model that can be used to determine the ultimate change on a project's base NPV.

JEL codes: A22, A23, G30, G31
Keywords: bonus depreciation, simulation, Excel

  •   The article is available online at: http://www.financialdecisionsonline.org/current/KuhlemeyerWachowiczWinter2011.pdf

  •  The Excel spreadsheet appearing in the article is available online at: Excel Spreadsheet.

    Other Useful Bonus Depreciation Links

  •   Section 179 and Bonus Depreciation Expensing Allowances. Congressional Reasearch Service (CRS) Report for Congress prepared by Gary Guenther, Analyst in Public Finance, July 15, 2013.
    http://cdn.akingump.com/images/content/2/4/v2/24046/CRS-179-and-168-Report-7-15-13.pdf

  • Economic Stimulus Act (ESA) of 2008 -- Plus Numerous Extensions/Expansions through the PATH Act of 2015. May affect business tax payments, capital budgeting decisions, and/or borrow-to-buy vs. leasing decisions.
    http://web.utk.edu/~jwachowi/hr5140.html

  • DepreciationBonus.Org. One-stop web clearinghouse for information about capital investment incentives involving "bonus depreciation" programs.
    http://www.depreciationbonus.org/
  •   CCH Tax Briefing: Protecting Americans from Tax Hikes Act of 2015 https://www.bdo.com/getattachment/2ccf64fd-5806-452d-a27b-d976cf8f146a/attachment.aspx

  •   CCH Tax Briefing: American Taxpayer Relief Act of 2012. http://tax.cchgroup.com/downloads/files/pdfs/legislation/ATPR.pdf

  •   CCH Tax Briefing: 2010 Tax Relief/Job Creation Act. http://tax.cchgroup.com/downloads/files/pdfs/legislation/bush-taxcuts.pdf

  •   CCH Tax Briefing: 2008 Economic Stimulus Package. http://tax.cchgroup.com/legislation/2008-stimulus-package.pdf


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