Why do we add the result from the CCA tax shield to the NPV analysis?

Question

Quizplus · Accepted Answer

The CCA tax shield represents the tax cash flow saved by depreciating the asset. By adding this tax shield to the NPV analysis, we are accounting for the tax benefits associated with the investment. This will give us a more accurate picture of the net cash flows and overall profitability of the investment. Option A is incorrect because tax shield represents a benefit instead of a cost. Option C is incorrect because expensing the interest would not result in a CCA tax shield.

Why Do We Add the Result from the CCA Tax