we know that depreciation is linked to the net cash flows of the company's investments. In fact, any increase in depreciation amounts leads to an increase in net cash flows because: a. reduces investment-related taxes b. increases investment-related taxes c. increases the tax rate on investment gains d. reduces the discount rate of investments

we know that depreciation is linked to the net cash flows of the company's investments. In fact, any increase in depreciation amounts leads to an increase in net cash flows because: a. reduces investment-related taxes b. increases investment-related taxes c. increases the tax rate on investment gains d. reduces the discount rate of investments

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: 2

A: The objective of the question is to identify the correct statement among the given options related…

Q: Which statement about the cost of capital is incorrect? * A. If a company’s tax rate increases…

A: The weighted average cost of capital (WACC) is the sum of costs of different sources of finance…

Q: Return on investment can be increased by which of the following events: (a) increasing operating…

A: The objective of the question is to identify which of the given events can increase the return on…

Q: When one uses the after-tax weighted average cost of capital (WACC) to value a levered firm, the…

A: Introduction:- The main use of Weighted average cost of capital is to determine the cost of each…

Q: Value One category of capital investment evaluation methods does not use present value. The primary…

A: Cash Pay Back Method and Accounting Rate of Return are two Traditional methods of capital budgeting.…

Q: A company that earns a higher return with borrowed funds than it pays in interest on those funds is…

A: Financial leverage is the strategic use of borrowed funds to augment the return on investment. In…

Q: When comparing levered vs unlevered Capital structures why does leverage work to increase FPS for…

A: There can be two types of firms based on their capital structure. The firm which is completely…

Q: To get a project's after-tax cash flow, you must subtract depreciation as though it is an expense…

A: The difference between a company's cash inflows and outflows over time is its net cash flow. It is a…

Q: Regarding the trade-off theory, a firm would reach its optimal capital structure if the tax savings…

A: Capital Structure is the break-up of total amount of funds raised by entity to finance its…

Q: Introduction Net Present Value is a financial measure used to evaluate the profitability of an…

A: Solution given below Explanation:Step 1:The Net Present Value (NPV) is a fundamental concept in…

Q: Why do companies accelerate depreciation on their tax return but often use slower depreciation…

A: Companies generally use accelerated depreciation on their tax return, as these methods result in a…

Q: Profitability Index is used when: A. projects are not divisible and the company is in capital…

A: Profitability index is quite extensively used in selecting of projects.

Q: If an investment project will positively affect the cash flows of other products the firm currently…

A: Cannibalization can be defined as the negative effect on the existing business line or the product…

Q: After tax cash flow = Earnings after tax + __________ A sunk cost is one that has been incurred…

A: Cash flows after tax can be computed by adding back the depreciation or other sunk cost to the…

Q: 1.Which depreciation method should a firm choose if it wants to minimize its tax liabilities? a.…

A: Because of use, wear and tear, or obsolescence, the monetary value of an asset will depreciate over…

Q: Regarding the trade-off theory, capital structure is a trade-off between: O tangible and intangible…

A: The capital structure refers to the mix of various available sources of capital which is used by a…

Q: What is Human Capital? A. Part of the country's current output and imports is not consumed or…

A: The objective of the question is to identify the correct definition of Human Capital from the given…

Q: Adjusted present value technique is a technique that A) adjusts conventional present value for…

A: Adjusted present value technique is very common method used in the valuation of stock and companies…

Q: When the economic method is used, the investor will recognize the investment income when: Select…

Q: . A. it is very A disadvantage of the average rate of return method of capital investment analysis…

A: Average rate of return method of capital investment analysis:The average rate of return is the…

Q: True or False: When a company borrows money to finance the purchase of an asset to use in its…

A: Every organization's wants to achieve that much earing so that they can save amount after paying its…

Q: Discuss why it is advisable to invest in a group of financial assets rather than investing in just…

A: An investment is refer as an asset purchased with intention to earn income at some time in future.…

Q: A company can either purchase or lease an asset. When comparing the two alternatives, which of the…

A: When a manufacturing company finances and buys the assets for the production purpose. A company can…

Question

we know that depreciation is linked to the net cash flows of the company's investments. In fact, any increase in depreciation amounts leads to an increase in net cash flows because:

a. reduces investment-related taxes
b. increases investment-related taxes
c. increases the tax rate on investment gains
d. reduces the discount rate of investments

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Holding other factors constant, an increase in the tax rate on revenue generated by capital will: Group of answer choices not affect investment. increase business expenditure. decrease investment. increase investment.
What effect would a decreased cost of capital have on a firm's future investments?
15. Since a financial manager prefers to receive cash flows as fast as possible,____.A. a longer depreciable life is preferred to a shorter oneB. a shorter depreciable life is preferred to a longer oneC. the manager is not concerned with depreciable life, because depreciation is a noncash expenseD. the manager is not concerned with depreciable life, because once depreciation is a sunk cost.
Capital investment (sometimes also referred to as capital budgeting) is a company’s contribution of funds toward the acquisition of long-lived (long-term or capital) assets for further growth. True / False
An advantage that money has over other assets is that it: Answer a. Provides a higher return to the owner b. Is a safer asset to hold during times of inflation c. Increases in value over time d. Has lower transaction costs to use as a means of payment than other assets
True (t) or False (f) _____ A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.
19. All else being equal, a company would choose to invest in a capital asset if which of the following is true?⦁ If the payback period equals the amount invested⦁ If the expected accounting rate of return is less than the required rate of return⦁ If the expected accounting rate of return is greater than the required rate of return⦁ If the average amount invested is equal to the net cash inflows
According to the trade-off theory, the optimal capital structure is the level of debt that O minimizes the financial distress costs. equates the present values of the incremental interest tax shield and the incremental financial distress costs. maximizes the after-tax cash flows that are internally generated. maximizes the present value of the interest tax shield.
1.1. 1.7. Which item should be included on cash flow estimation in capital budgeting analysis? a. interest b. sunk cost d. cannibalization c. depreciation Other things held constant, which of the following event is most likely to increase WACC? a. increase tax rate b. increase stock price c. increase in the use of debt d. increase in dividend payout ratio Which of the following is not a means by which ownership implies corporate control? a. appointing a CEO b. proxy fight c. preemptive right d. classified stock 1.3. DA