Many Companies Use MACRS (Modified Accelerated Cost Recovery System) Depreciation

question 3

Multiple Choice

Many companies use MACRS (Modified Accelerated Cost Recovery System) depreciation for

• A) financial reporting purposes and a different method for tax purposes.
• B) financial reporting purposes because depreciation is not allowed for tax purposes.
• C) tax purposes because it results in a larger net income in the early years of a plant asset's life
• D) tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.

---

Definitions:

Upward Sloping Term Structure

A situation in the bond market where longer-term debt securities yield higher returns than shorter-term ones, indicative of normal market conditions.

Interest Rates

The amount charged by lenders as a percentage of the principal, which borrowers pay for the use of assets.

Nominal Interest Rate

The stated interest rate of a financial product, not adjusting for inflation, representing the actual rate charged by lenders to borrowers.