A firm which bases its capital budgeting decisions on either NPV or IRR will be more likely to accept a given project if it uses MACRS accelerated depreciation than if it uses the optional straight-line alternative, other things being equal.

Question

Quizplus · Accepted Answer

This is because MACRS accelerated depreciation generates larger tax savings in earlier years, which increases the present value of the tax shield and therefore increases the net present value (NPV) and internal rate of return (IRR) of a project.

A Firm Which Bases Its Capital Budgeting Decisions on Either