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Which of the following best explains why using MACRS depreciation instead of straight line depreciation often adds value to a project? The company will have more depreciation and pay less in taxes The tax payments are lower The timing of the tax payments is better The depreciated asset is worth more when it is sold
Which of the following best explains why using MACRS depreciation instead of straight line depreciation often adds value to a project? The company will have more depreciation and pay less in taxes The tax payments are lower The timing of the tax payments is better The depreciated asset is worth more when it is sold
Expert Solution
The timing of the tax payments is better.
Under MACRS, the value of the asset is depreciated more in the beginning years and less in the later years. Therefore, the tax payments in the initial years could be much lower than the long run. However, under straight line method, the tax payment will remain same over the years.
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