Accelerated depreciation laws may increase firms' investment in equipment because
A)machines will wear out more rapidly.
B)profits will be increased.
C)the rental rate on capital will be lowered.
D)the price of machines will fall.

Question

Quizplus · Accepted Answer

Accelerated depreciation laws allow firms to deduct a larger portion of the cost of equipment in the earlier years of its life, thus reducing the apparent cost of capital. This in turn lowers the effective rental rate on capital and makes investment in equipment more attractive.

Accelerated Depreciation Laws May Increase Firms' Investment in Equipment Because