What Is Meant by the Financing Trade-Off

question 28

Multiple Choice

What is meant by the financing trade-off?

• A)Financing is a necessary evil and people today could not live without it.
• B)Financing enables people to get what they want faster but encourages greed.
• C)Borrowing can slow the growth of your net worth if it is for depreciating assets.
• D)Borrowing is an important tool but it can cause budgeting problems.

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Definitions:

Accelerated Cost Recovery

A method of depreciation used for tax purposes that allows for higher deductions in the early years of an asset's life.

Straight-Line Depreciation

Straight-Line Depreciation is a method where the cost of a tangible asset is reduced evenly over its useful life.

Deferred Tax Income Tax

A tax liability or asset that arises due to temporary differences between the financial reporting and tax bases of assets and liabilities.

Valuation Allowance

An accounting practice used to offset a deferred tax asset on the balance sheet if it is likely that some portion or all of the asset may not be realized.