QUESTION 1 1 points Save A start-up firm is making an initial investment in new

Question

QUESTION 1 1 points Save A start-up firm is making an initial investment in new plant and equipment. 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? O The firm's reported net income would increase O The firm's tax payments would increase. O The firm's taxable income would increase. O The firm's operating income (EBIT) would increase. O The firm's cash flow would increase

Explanation / Answer

Ans is E The firms cash flow would increase.

Explanation: When expected economic life of assets are decreased then its remaining book value is depreciated earlier than before, which results in higher depreciation for that year and resulting less tax outflow hence its cash flow would increase due to higher depreciation added back and low tax outflow.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.