Which of the following statements is CORRECT? a. Under current laws and regulations, corporations must use...
Which of the following statements is CORRECT?
a. Under current laws and regulations, corporations must use straight-line depreciation for all assets whose lives are 5 years or longer.
b. Using accelerated depreciation rather than straight line would normally have no effect on a project's total projected cash flows but it would affect the timing of the cash flows and thus the NPV.
c. Since depreciation is not a cash expense, it has no effect on cash flows and thus no effect on capital budgeting decisions.
d. Corporations must use the same depreciation method (e.g., straight line or accelerated) for stockholder reporting and tax purposes.
e. Under accelerated depreciation, higher depreciation charges occur in the early years, and this reduces the early cash flows and thus lowers a project's projected NPV.
Homework Answers
Option b is the correct option.
Using accelerated depreciation rather than straight line would
normally have no effect on a project's total projected cash flows
but it would affect the timing of the cash flows and thus the
NPV.
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