Finance Formulas / July 11, 2018 / Heaven Estes
A depreciation rate is the percentage of a long-term investment that you use as an annual tax deductible expense during the period over which you claim it as a tax deduction. Because you use fixed assets, or major business investments, over time, it doesn't make sense to simply deduct the total amount you pay during the year you pay it.
Consider the following example to illustrate the concept. Assume hypothetical company BigBox has operating income or earnings before interest and taxes (EBIT) of $100 million in Year 1, with interest expense of $10 million, and has 100 million shares outstanding. (For the sake of clarity, let’s ignore the effect of taxes for the moment.)
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