Why is it likely that firms use straight-line depreciation methods for reporting to shareholders?
A) It increases the NPV of the project.
B) It decreases the tax liability of the project.
C) It mirrors the market value of the assets.
D) It allows asset balances to decline more slowly.

Question

Quizplus · Accepted Answer

Straight-line depreciation allows the asset balances to decline more slowly, which can be advantageous for firms when reporting to shareholders. This method avoids large fluctuations in the value of the assets over time, which could give shareholders a false impression of the company's financial performance. By using straight-line depreciation, firms can provide a more stable and consistent picture of the asset values and the overall financial health of the company. The other options, such as increasing the NPV or decreasing the tax liability, are generally not the primary reasons why firms choose to use straight-line depreciation for reporting to shareholders.

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