Start-Up Firm Is Making an Initial Investment in New Plant

question 6

Multiple Choice

start-up firm is making an initial investment in new plant and equipment.Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years.If the legislation becomes law, which of the following would occur in the year following the change?

• A)The firm's operating income (EBIT) would increase.
• B)The firm's taxable income would increase.
• C)The firm's net cash flow would increase.
• D)The firm's tax payments would increase.
• E)The firm's reported net income would increase.

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Definitions:

Sales Discounts

A reduction in the price of goods or services offered by a seller to encourage prompt payment by the buyer.