The accelerated write-off of capital costs in MACRS provides a taxable expense that reduces taxes at a faster rate than with straight-line. Therefore, according to ________ concepts, we can surmise that bigger tax cuts in the earlier years and lower tax cuts in the later years are better than a steady tax cut each year.
A) time-value of money
B) depreciation and sunk costs
C) depreciation and opportunity costs
D) interest rate

Question

Quizplus · Accepted Answer

The time-value of money concept suggests that a dollar received today is worth more than a dollar received in the future due to the potential for investment and earning a return. Accelerated write-offs in MACRS provide a larger tax cut in the earlier years, which can be reinvested and earn a return, increasing the value of the tax cut. In contrast, a steady tax cut each year does not provide the same opportunity for reinvestment and returns. Therefore, bigger tax cuts in the earlier years and lower tax cuts in the later years are preferred, consistent with the time-value of money concept. The other concepts listed (depreciation and sunk costs, depreciation and opportunity costs, and interest rate) are not directly related to the issue of tax cuts and their timing.

The Accelerated Write-Off of Capital Costs in MACRS Provides a Taxable