A company uses straight-line instead of the units of production method of depreciation. Assuming a tax rate of zero, which statement is true as a result of its choice of depreciation methods?
A)Cash flows from operations will be less than under the straight-line method
B)Cash flows from operations will be more than under the straight-line method
C)Cash used for investing activities will be more than under the straight-line method
D)Cash flows are the same as if the straight-line method had been used.

Question

Quizplus · Accepted Answer

Since there is no tax rate, the choice of depreciation method will not affect the tax shield provided by depreciation. Therefore, the cash flows from operations and investing activities will be the same regardless of the depreciation method chosen. Thus, cash flows will be the same as if the straight-line method had been used.

A Company Uses Straight-Line Instead of the Units of Production