Which of the following statements regarding depreciation is incorrect?
A) The depreciation tax shield adjusts with the level of inflation.
B) The nominal amount of depreciation is fixed, thus the higher the rate of inflation, the lower the real value of the depreciation that you can claim.
C) Tax law allows accelerated depreciation.
D) The rate at which firms are permitted to depreciate equipment is known as the modified accelerated cost recovery system, or MACRS.

Question

Quizplus · Accepted Answer

Depreciation tax shield does not adjust with the level of inflation; it is based on the nominal depreciation expense and the tax rate.

Which of the Following Statements Regarding Depreciation Is Incorrect