Question

Which of the following statements that relate to capital budgeting is true?

A.The impact of taxes on capital budgeting will not make a difference in the decision to purchase new equipment.
B.Accelerated methods of depreciation provide tax shields that are advantageous from a present-value point of view.
C.The depreciation method used for financial accounting reporting and not the depreciation method used for tax purposes should be used in capital budgeting decisions.
D.If the depreciable life of a project is shorter than the expected useful life of the project, then the anticipated after-tax cash flows should be evaluated over the depreciable life.

Answer 1

Option B: Accelerated methods of depreciation provide tax shields that are advantageous from a present-value point of view.

Step-by-step explanation:

The correct statement that relates to capital budgeting is option B: Accelerated methods of depreciation provide tax shields that are advantageous from a present-value point of view. In capital budgeting, tax shields are benefits that arise from taking depreciation deductions on a company's taxable income. Accelerated methods of depreciation, such as the double-declining balance method or the sum-of-the-years'-digits method, allow for greater depreciation deductions in the early years of an asset's life. These tax shields can reduce a company's taxable income, resulting in lower tax payments and increased cash flows.