Question
Suppose a firm could choose between the following 3 different depreciation schedules to depreciate a $100 investment. The required rate of return is 10% and
Suppose a firm could choose between the following 3 different depreciation schedules to depreciate a $100 investment. The required rate of return is 10% and your tax rate is 34%. All else equal (no risk, no other tax implications), which depreciation schedule maximizes firm value?
Depreciation Schedule | Year 1 | Year 2 | Year 3 | Year 4 |
MACRS | 33.33% | 44.45% | 14.81% | 7.41% |
DCRS | 7.41% | 14.81% | 44.45% | 33.33% |
Straight-line | 25.00% | 25.00% | 25.00% | 25.00% |
Group of answer choices
Both MACRS and DCRS depreciation
Both DCRS and Straight-line depreciation
MACRS depreciation
Straight-line depreciation
DCRS depreciation
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started