Why is it likely that new firms use straight-line depreciation methods for reporting to shareholders?
A) It increases the NPV of the firm's projects.
B) It provides the greatest current tax benefit.
C) It allows asset book values to increase with market values.
D)It allows asset balances to decline more slowly.

Question

Quizplus · Accepted Answer

New firms may want to use straight-line depreciation methods because it allows asset balances to decline more slowly, which can make their financial statements appear stronger and more stable to shareholders. This can help to build investor confidence and attract new investment, which is important for the growth and development of new businesses. Additionally, since new firms may have limited taxable income in their early years, the current tax benefit from accelerated depreciation methods may not be as significant as the long-term benefits of slower asset balance reduction.

Why Is It Likely That New Firms Use Straight-Line Depreciation