Flex Corporation is studying a capital investment proposal in which newly acquired assets will be depreciated using the straight-line (SL) method with no salvage value. Which one of the following statements about the proposal would be incorrect if, instead of SL, the Modified Accelerated Cost Recovery System (MACRS) is used for determining depreciation expense for income tax purposes? (Assume that income tax rates are constant over the life of the assets involved.)
A) The estimated net present value (NPV) of the project would increase.
B) The internal rate of return (IRR) of the project would likely increase.
C) The payback period for the investment would be shortened.
D) The total after-tax income from this project, over its life, would normally increase.
E) Total tax payments over the life of the project would be unaffected.

Question

Quizplus · Accepted Answer

The total after-tax income from the project over its life would not increase with MACRS; it would remain the same as with SL because total depreciation is the same, only the timing differs.

Flex Corporation Is Studying a Capital Investment Proposal in Which