Which of the following statements is CORRECT?
A) Using accelerated depreciation rather than straight line would normally have no effect on a project's total projected cash flows but it would affect the timing of the cash flows and thus the NPV.
B) Under current laws and regulations, corporations must use straight- line depreciation for all assets whose lives are 5 years or longer.
C) Corporations must use the same depreciation method (e.g., straight line or accelerated) for stockholder reporting and tax purposes.
D) Since depreciation is not a cash expense, it has no effect on cash flows and thus no effect on capital budgeting decisions.

Question

Quizplus · Accepted Answer

Using accelerated depreciation instead of straight line depreciation affects the timing of cash flows, which in turn affects the NPV. The total projected cash flows would remain the same regardless of the depreciation method chosen. Option B is not correct as companies are allowed to use various methods of depreciation based on their preference. Option C is incorrect as companies can use different depreciation methods for reporting and tax purposes. Option D is incorrect as depreciation is a non-cash expense that affects the cash flow and the capital budgeting decisions.

Which of the Following Statements Is CORRECT