Question

If they use accelerated depreciation, firms can write off assets faster than they could under straight-line depreciation, and as a result projects' forecasted NPVs are normally higher than they would be if straight-line depreciation were required for tax purposes.

True or False?

Answer 1

Explanation: The NPv would have been higher if they had used straight line depreciation.

In Accelerated depreciation method an asset losses it book value faster than the traditional straight line method. Accelerated depreciation allows greater deduction in the early years of an asset and it is used to minimize taxable income.

Straight line depreciation is the common method, here the value of a fixed asset is reduced gradually over its useful life. This method gradually reduce the carrying amount of a fixed asset over is useful life.