Which of the following statements is CORRECT?
A) Since depreciation is not a cash expense,and since cash flows and not accounting income are the relevant input,depreciation plays no role in capital budgeting.
B) Under current laws and regulations,corporations must use straight-line depreciation for all assets whose lives are 3 years or longer.
C) If firms use bonus depreciation,they will write off assets slower than they would under straight-line depreciation,and as a result projects' forecasted NPVswould normally be lower than they would be if straight-line depreciation were required for tax purposes..
D) If firms use bonus depreciation,they can write off assets faster than they could under straight-line depreciation,and as a result projects' forecasted NPVs would normally be lower than they would be if straight-line depreciation were required for tax purposes.
E) If firms use bonus depreciation,they can write off assets faster than they could under straight-line depreciation,and as a result projects' forecasted NPVs would normally be higher than they would be if straight-line depreciation were required for tax purposes.

Question

Quizplus · Accepted Answer

Depreciation affects capital budgeting decisions through its impact on taxes. Accelerated or bonus depreciation allows firms to write off assets faster, reducing taxable income in the early years of a project. This leads to higher tax savings and increases the project's net present value (NPV), making E the correct statement.

Which of the Following Statements Is CORRECT