Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 8.4, Problem 1CC
Summary Introduction
To explain: The advantages for a company to utilize the most accelerated
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Explain what is meant by an accelerated depreciationmethod. Are accelerated methods more widely used infinancial statements or in income tax returns? Explain.
a. For reporting purposes, management prefers higher
profit; for tax purposes, lower taxable income is desired.
To meet these goals, firms often use different methods
of depreciation for tax and reporting purposes. Which
depreciation method is best for reporting and which for
tax purposes in the short run? Why?
Discuss the difference between the straight-line method of depreciation and the accelerated methods. Why do companies use different depreciation methods for tax reporting and financial reporting?
Chapter 8 Solutions
Corporate Finance
Ch. 8.1 - How do we forecast unlevered net income?Ch. 8.1 - Prob. 2CCCh. 8.1 - Prob. 3CCCh. 8.2 - Prob. 1CCCh. 8.2 - What is the depreciation tax shield?Ch. 8.3 - Prob. 1CCCh. 8.3 - Prob. 2CCCh. 8.4 - Prob. 1CCCh. 8.4 - What is the continuation or terminal value of a...Ch. 8.5 - Prob. 1CC
Ch. 8.5 - How does scenario analysis differ from sensitivity...Ch. 8 - Pisa Pizza, a seller of frozen pizza is...Ch. 8 - Kokomochi is considering the launch of an...Ch. 8 - Home Builder Supply, a retailer in the home...Ch. 8 - Hyperion, Inc. currently sells its latest...Ch. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Castle View Games would like to invest in a...Ch. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - A bicycle manufacturer currently produces 300,000...Ch. 8 - Prob. 13PCh. 8 - Prob. 14PCh. 8 - Prob. 15PCh. 8 - Prob. 16PCh. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Prob. 20PCh. 8 - Prob. 21P
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- The faster an asset can be depreciated, according to IRS rules, the greater a company's after-tax profits. Is this true or false?arrow_forwardHow is a business activity distinguished from an investment activity? why is this distinction important for the purpose of calculating federal income taxes? What types of losses may potentially be characterized as passive losses?arrow_forwardWhat are the benefits of calculating depreciation differently for financial reports and for tax purposes?arrow_forward
- What is depreciation and amortization? What's the difference? It is an accounting concept that has an indirect impact on cash flow as it is deductible for tax purposes and lowers the overall amount of taxes paid for that period. Therefore, it does impact or lower cash outflows for taxes. That is called the tax shield of depreciation and amortization. Over the course of my career, companies have increased their percentage of intangible property that must be amortized. Now, it is very common where companies will have little property, plant and equipment, but lots of intangible property. Why?arrow_forwardIf a company wanted to take advantage of depreciation expenses, how would this company accomplish this? What would be the advantages? Are there any disadvantages?arrow_forwardPresent a mathematical solution in order to express that how depreciation can effect tax liability and what will be the suitable technique in perspective of higher tax benefits. Mathematical comparison for each step is required.arrow_forward
- A company can either purchase or lease an asset. When comparing the two alternatives, which of the following is not an advantage of buying and financing the asset? (a) the possibility of receiving an investment tax credit (b) Obtaining a tax deduction for the depreciation expense (c) The potential of the asset to appreciate in value (d) Improved financial leveragearrow_forwardGiven the frequently changing nature of depreciation and tax law,what must we use?arrow_forwardPoston Company uses an accelerated depreciation method for tax purposes rather than straight-line depreciation for a new asset acquisition. Which of the following choices correctly shows when the majority of depreciation would be taken (early or late in the asset's life), when most of the tax savings occur (early or late in the asset's life), and which depreciation method would have the higher present value? When Majority of Depreciation is Taken When Majority of Tax Savings Occur Depreciation Method with Higher Present Value A. Early in life Early in life Accelerated B. Early in life Early in life Straight-line C. Early in life Late in life Straight-line D. Late in life Late in life Straight-line E. Late in life Early in life Accelerated Multiple Choice Choice A Choice B Choice C Choice D Choice Earrow_forward
- The primary advantage to using accelerated rather than straight-line depreciation is that with accelerated depreciation the total amount of depreciation that can be taken, assuming the asset is used for its full tax life, is greater. A True Falsearrow_forwardIf a company is seeking to minimize its income tax expense, the depreciation method it would most likely select would be the: units of production method straight-line method single-and-a-half depreciation method double-declining balance methodarrow_forwardHow can we determine the annual depreciation for tax purposes?arrow_forward
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