Explain How a Consumption Tax Could Lead to a Decrease

question 8

Essay

Explain how a consumption tax could lead to a decrease in real interest rates.

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Definitions:

Incremental Cash Flows

These are the additional cash flows from operations that a business generates from taking on a new project.

Capital Budgeting

Capital budgeting is the process by which a business evaluates and selects significant long-term investments, based on potential returns and strategic objectives.

Net Acquisition

When there is a purchase and sale of assets (within the same asset class) in the same year, CCA is calculated on the capital cost of the new asset minus the lesser of the original capital cost or the net proceeds from the asset disposed.

Half-year Rule

The half-year rule is a tax regulation that allows only half the year's depreciation expense on newly acquired assets to be deducted in the first year.