DeYoung Devices Inc., a new high-tech instrumentation firm, is building and equipping a new manufacturing facility. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change?

Question

Quizplus · Accepted Answer

If the depreciation period is shortened, the firm would have higher depreciation expenses each year, reducing taxable income and taxes paid, thus increasing net cash flow.