Setting an estimated life expectancy of an asset too low understates the profitability of the investment and could result in the firm rejecting profitable opportunities.

Question

Quizplus · Accepted Answer

Setting the estimated life expectancy of an asset too low can lead to higher depreciation expenses in the short term, which reduces reported profits. This could make potentially profitable investments seem less attractive, leading to the rejection of opportunities that could have been beneficial for the firm.

Setting an Estimated Life Expectancy of an Asset Too Low