The LeMond Corporation Just Purchased a New Production Line

question 19

Multiple Choice

The LeMond Corporation just purchased a new production line.Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years.Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

• A) LeMond's tax liability for the year will be lower.
• B) LeMond's taxable income will be lower.
• C) LeMond's net fixed assets as shown on the balance sheet will be higher at the end of the year.
• D) LeMond's cash position will improve (increase).
• E) LeMond's reported net income after taxes for the year will be lower.

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Definitions:

Input Demand Curves

Graphs showing the relationship between the price of inputs and the quantity of inputs demanded by producers.

Marginal Product

The elevation in production output stemming from the addition of one unit of input.

Profit Maximization

The process or strategy where a firm adjusts its production to achieve the highest possible profit.

Capital

Financial assets or the financial value of assets, such as funds held in deposit accounts, as well as the physical factors of production including machinery, buildings, and land.