Suppose a Corporation Can Change Its Depreciation Method So That

question 43

Multiple Choice

Suppose a corporation can change its depreciation method so that its tax payments will decrease by $5,000 this year but increase by $5,000 next year.

• A) The change will have no impact on the value of the company because its cash flow over time will be the same.
• B) The change will decrease the value of the company because investors don't like changes in accounting methods.
• C) The change will decrease the value of the company because lower tax payments this year result from lower reported income.
• D) The change will increase the value of the company because the value of the cash savings this year exceeds the cost of the cash payments next year.

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Definitions:

Growth Hormone

A hormone secreted by the anterior pituitary gland that stimulates growth, cell reproduction, and cell regeneration.

Gigantism

A condition characterized by excessive growth and height significantly above average, due to an overproduction of growth hormone in childhood.

Antidiuretic Hormone

A hormone released by the pituitary gland that regulates water balance by reducing urine production and increasing water reabsorption by the kidneys.

Posterior Pituitary

The rear portion of the pituitary gland, responsible for the storage and release of antidiuretic hormone (ADH) and oxytocin, which play roles in water balance and childbirth respectively.