Which of the following best explains why it is sensible for a firm to use an accelerated depreciation schedule rather than straight-line depreciation?
A)The firm will have substantially fewer depreciation expenses later in 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 substantially decrease its depreciation tax shield across all of 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).

Question

Quizplus · Accepted Answer

Using an accelerated depreciation schedule allows for greater depreciation expenses in the early years of an asset's life, which decreases taxable income and therefore increases cash flow and net present value (NPV) in those early years. This can be more beneficial for the firm than spreading out the depreciation expenses evenly over the asset's entire life.

Which of the Following Best Explains Why It Is Sensible