The present value at any given discount rate of the depreciation tax shield is: A) equal for all depreciation methods. B) higher with MACRS than straight-line depreciation. C) higher for the 10^th year than the 7-year recovery period class. D) likely to increase annually due to inflation.

Question

Quizplus · Accepted Answer

The depreciation tax shield is higher with MACRS (Modified Accelerated Cost Recovery System) than with straight-line depreciation because MACRS allows for larger depreciation deductions in the early years of the asset's life. This results in higher tax savings and a higher present value of the depreciation tax shield. The other options are incorrect because the present value of the depreciation tax shield varies depending on the depreciation method and recovery period, and it does not necessarily increase annually due to inflation.

The Present Value at Any Given Discount Rate of the Depreciation