A Start-Up Firm Is Making an Initial Investment in a New

question 73

Multiple Choice

A start-up firm is making an initial investment in a 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 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:

Strict Liability

A legal doctrine holding an individual or entity liable for damages regardless of fault, often applied in cases involving inherently hazardous activities.

Inherent Dangerousness

The natural tendency of an activity, substance, or situation to pose a risk of harm or injury.

Court of Appeal

A court in many jurisdictions that hears appeals from decisions of lower courts, reviewing matters of law and fact for errors.

Magistrate's Court

A lower-level court where minor criminal offenses and civil cases are heard and determined.