Which of the Following Best Explains Why Is It Sensible

question 36

Multiple Choice

Which of the following best explains why is it sensible for a firm to use an accelerated depreciation schedule such as MACRS rather than straight-line depreciation?

• A) The firm will substantially decrease its depreciation tax shield across all of the depreciation timeline.
• B) The firm can decide over how many years an item may be depreciated, thus allowing it full control of its depreciation expenses.
• C) The firm will have substantially fewer depreciation expenses later in the depreciation timeline.
• D) The firm will receive greater benefits to its cash flow earlier in the depreciation timeline and thus increase net present value (NPV).

---

Definitions:

Additional Assets

Additional resources or properties acquired by a firm or individual which can be utilized for generating revenue or held as an investment.

Incremental Cash Flow

The additional cash flow generated by a company from undertaking a new project or making a business decision, used to analyze the profitability of that decision.

Taxes

Taxes are compulsory financial charges or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Dividends

Payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.