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:

Unattainable

Something that cannot be achieved or reached, often used in the context of goals or objectives that are beyond reach due to current limitations.

Outward Shift

An increase in the production capacity of an economy, often represented as an outward movement on a graph.

Production Possibilities Curve

A graph that depicts the maximum output of two goods that can be produced with available resources and technology, assuming all resources are fully utilized.

Tax Policy

The government's approach to taxation, which includes the determination of tax rates and the identification of what economic activities or transactions will be taxed.