Which of the following statements regarding CCA is true?
A)Since CCA is a cash expense, the faster an asset is depreciated, the lower the projected NPV from investing in the asset.
B)When corporations use CCA, the stockholder report financially looks better.
C)CCA is a pool concept calculating values for the entire asset class, not individual assets.
D)Using CCA declining-balance 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

CCA stands for Capital Cost Allowance and is a method of calculating tax depreciation in Canada. It is a pool concept, which means that assets in the same class are grouped together and depreciated collectively rather than individually. Choice A is incorrect because the rate of CCA depreciation does not impact cash flows or NPV directly. Choice B is incorrect because CCA only affects tax reporting, not financial reporting. Choice D is incorrect because declining-balance CCA depreciation is an accelerated method that results in faster depreciation and higher CCA deductions, which can improve a project's forecasted NPV.

Which of the Following Statements Regarding CCA Is True