Why Does the IRS Allow Larger Depreciation Amounts in the Early

question 28

Multiple Choice

Why does the IRS allow larger depreciation amounts in the early years of an asset's life?

• A)The calculations are easier if you allow more depreciation in the early years of an asset's life.
• B)The government wants to encourage companies to invest in assets to promote economic renewal and growth.
• C)So that most income taxes are paid by average taxpayers,rather than by big corporations.
• D)The calculations are more complicated,so it provides more jobs for accountants and thus stimulates the economy.

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Definitions:

Discounted Cash Flow

An investment appraisal technique that values a project or an asset based on the present value of its expected future cash flows.

Valuation

The process of determining the present value of an asset or a company based on earnings, assets, and market comparisons.

Required Return

The minimum expected yield by investors to justify the risk of the investment.

Independent Projects

Investment projects whose cash flows are not affected by the accept or reject decision for any other project, allowing for independent evaluation.