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.

Question

Quizplus · Accepted Answer

Using accelerated depreciation leads to higher tax savings in the early years, thus speeding up cash flows and increasing the NPV of a project. However, it is important to note that this benefit comes at the cost of lower tax savings in later years.

Which of the Following Statements Is CORRECT