Which of the following statements is CORRECT?
A) Since depreciation is a cash expense,the faster an asset is depreciated,the lower the projected NPV from investing in the asset.
B) Under current laws and regulations,corporations must use straight-line depreciation for all assets whose lives are 5 years or longer.
C) Corporations must use the same depreciation method for both stockholder reporting and tax purposes.
D) Using accelerated depreciation rather than straight line normally has the effect of speeding up cash flows and thus increasing a project's forecasted NPV.
E) Using accelerated depreciation rather than straight line normally has the effect of slowing down cash flows and thus reducing a project's forecasted NPV.

Question

Quizplus · Accepted Answer

Using accelerated depreciation means that more depreciation expense is taken in the earlier years of an asset's life, which reduces taxable income and therefore taxes paid. This results in increased cash flows in the earlier years, leading to a higher forecasted NPV.

Which of the Following Statements Is CORRECT