Corporate tax reduction is used as a fiscal tool to stimulate investment in depreciable assets. But such a tax cut has several direct and indirect effects on business investment which do not run in the same direction. This paper focuses on a “cash flow effect” which increases the profitability of projects, and a “discount rate effect” which reduces the profitability of capital investments. Ignoring the macroeconomic effects of a corporate tax cut and their feedback effect on business investment, the interaction of these two opposing forces renders the net effect of a corporate tax cut on capital investments theoretically indeterminate. However, a numerical example shows that for reasonable parameters, the net effect on capital investments of a tax cut may be positive.