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Depreciation, inflation and capital replacement

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  • GIORA MOORE

Abstract

. This paper examines the effects of depreciation, taxes and inflation on the optimal timing of asset replacement in accordance with the Canadian tax laws. The main findings are that an increase in the capital cost allowance rate will delay (accelerate) replacement of fixed assets at low (high) levels of capital cost allowance rates, and that an increase in the annual inflation rate will delay (accelerate) replacement of fixed assets at low (high) levels of inflation. The applications of the replacement model are illustrated with numerical examples.

Suggested Citation

  • Giora Moore, 1987. "Depreciation, inflation and capital replacement," Contemporary Accounting Research, John Wiley & Sons, vol. 3(2), pages 375-383, March.
    • Handle: RePEc:wly:coacre:v:3:y:1987:i:2:p:375-383
    DOI: 10.1111/j.1911-3846.1987.tb00644.x
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    References listed on IDEAS

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    1. Nelson, Charles R, 1976. "Inflation and Capital Budgeting," Journal of Finance, American Finance Association, vol. 31(3), pages 923-931, June.
    2. Hawkins, C. A. & Leggett, D. N., 1983. "The investment tax credit in capital replacement: A simulation," Journal of Accounting and Public Policy, Elsevier, vol. 2(3), pages 167-187.
    3. Auerbach, Alan J, 1979. "Inflation and the Choice of Asset Life," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 621-638, June.
    4. Brenner, Menachem & Venezia, Itzhak, 1983. "The Effects of Inflation and Taxes on Growth Investments and Replacement Policies," Journal of Finance, American Finance Association, vol. 38(5), pages 1519-1528, December.
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