Question

If a company is operating at a profit, the cash inflow resulting from the depreciation tax shield is computed by multiplying the depreciation deduction by one minus the tax rate.

a. True
b. False

Answer 1

False, The cash inflow resulting from the depreciation tax shield is computed by multiplying the depreciation deduction by the tax rate, not one minus the tax rate.

Step-by-step explanation:

The statement, 'If a company is operating at a profit, the cash inflow resulting from the depreciation tax shield is computed by multiplying the depreciation deduction by one minus the tax rate' is False.

The cash inflow resulting from the depreciation tax shield is actually computed by multiplying the depreciation deduction by the tax rate, not one minus the tax rate.

The depreciation tax shield is a tax reduction resulting from the depreciation of an asset, which allows a company to deduct a portion of the asset's cost from its taxable income. This deduction can reduce the company's tax liability and lead to increased cash inflow.