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Appendix 12A: Tax Depreciation Conceptual M/C Page 473
(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard)
Note that there is some overlap between the T/F and the multiple choice questions, as some T/F
statements are used in the MC questions. See the preface for information on the AACSB letter
indicators (F, M, etc.) on the subject lines.
Multiple Choice: Conceptual
1
. Other things held constant, which of the following would increase the
NPV of a project being considered?
a. A shift from straight-line to MACRS depreciation.
b. Making the initial investment in the first year rather than spreading
it over the first three years.
c. An increase in the discount rate associated with the project.
d. An increase in required net operating working capital.
e. The project would decrease sales of another product line.
2
. Which of the following statement completions is NOT CORRECT? For a
profitable firm, when MACRS accelerated depreciation is compared to
straight-line depreciation, MACRS accelerated allowances produce
a. Higher depreciation charges in the early years of an asset’s life.
b. Larger cash flows in the earlier years of an asset’s life.
c. Larger total undiscounted profits from the project over the project’s
life.
d. Smaller accounting profits in the early years, assuming the company
uses the same depreciation method for tax and book purposes.
e. Lower tax payments in the earlier years of an asset’s life.
APPENDIX 12A
TAX DEPRECIATION
Page 474 AnswersAppendix 12A: Tax Depreciation
APPENDIX 12A
ANSWERS AND SOLUTIONS
