A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but now the company is allowed to depreciate the equipment over 7 years. Which of the following would occur in the year following the change?

Question

Quizplus · Accepted Answer

Depreciating the equipment over 7 years instead of 10 increases the depreciation expense each year, reducing taxable income and thus tax payments, leading to higher net cash flow.

A Start-Up Firm Is Making an Initial Investment in New