The use of accelerated versus straight-line depreciation causes net income reported to stockholders to be lower, and cash flows higher, during every year of a project's life, other things held constant.

Question

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Accelerated depreciation causes net income to be lower in the early years of a project's life due to higher depreciation expenses, but it does not affect the total cash flows from operations, as depreciation is a non-cash expense. Over the life of the project, the total depreciation expense is the same for both methods, just allocated differently over time.

The Use of Accelerated Versus Straight-Line Depreciation Causes Net Income