Given a financial manager's preference for faster receipt of cash flows, ________.
A) a longer depreciable life is preferred to a shorter one
B) a shorter depreciable life is preferred to a longer one
C) the manager is not concerned with depreciable life, because depreciation is a noncash expense
D) the manager is not concerned with depreciable life, because once purchased, depreciation is considered a sunk cost

Question

Quizplus · Accepted Answer

A shorter depreciable life means that more of the asset's cost is expensed each year, resulting in a larger tax deduction and a lower tax bill, which leads to faster receipt of cash flows. Therefore, a financial manager's preference for faster receipt of cash flows will lead to a preference for a shorter depreciable life.

Given a Financial Manager's Preference for Faster Receipt of Cash