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

Question

Quizplus · Accepted Answer

This is true because accelerated depreciation methods such as MACRS can result in higher tax savings in the earlier years of the project, leading to higher cash flows and a higher NPV or IRR. Straight-line depreciation, on the other hand, spreads the tax savings evenly over the life of the asset, resulting in lower tax savings in the early years and potentially a lower NPV or IRR.

Firm That Bases Its Capital Budgeting Decisions on Either NPV